Expert proposes 12% reduction in MPC rate for economic growth

An economist, Dr. Bongo Adi, has called on the Central Bank of Nigeria to reduce the Monetary Policy Committee rate to 12 per cent in order to encourage speedy economic growth in the country.
Adi, who is also a senior lecturer at the Lagos Business School, said that maintaining the interest rates at the present level at the forthcoming MPC meeting would imply that the government was not interested in growing the real sector of the economy.
He argued that government was no longer under pressure to retain the Monetary Policy Rate at 14 per cent, due to the declining inflation rate.
The Monetary Policy Rate is the benchmark rate at which banks can lend to companies and their customers.
However, recent data released by the National Bureau of Statistics showed that the October inflation rate stood at 15.91 per cent, the ninth consecutive decline in inflation rate since the beginning of the year.
Inflation targeting had been a major economic policy objective of the CBN and this has been the focus of its Monetary Policy Committee.
He noted that the apex bank had, since July 26, 2016, maintained the MPR at 14 per cent, the Cash Reserve Ratio at 22.5 per cent and the Liquidity Ratio at 30 per cent, in its bid to control inflation.
Adi said that inflation declined because of government’s sustained and efficient battle against any surge in the foreign exchange rate, like what was witnessed in the country in the last one or two years.
He said, “Government has been under pressure from the real sector to cut the interest rate because inflation has been on the decline. The inflation that we had was cost-push inflation and it arose as a result of the depreciation of the naira and with the sanitation of the foreign exchange market, we have seen inflation dropping. I expect government to cut the rate as a palliative measure to boost activities in the manufacturing sector.
“Even though other sectors have bounced out of recession, the manufacturing sector seems to still be suffering, because of the high borrowing rates in the banks. With a rate cut, things would become easier for them.”
He explained that the macroeconomic environment, stability in oil price and oil production had increased government’s liquidity and revenue, thereby reducing its financial pressures.
Adi added that government’s efforts to source money to fund the budget
deficit could be a dynamic move that might work against rate cut.