Prof. Uche Uwaleke, President of the Capital Market Academics of Nigeria, stated that the Central Bank of Nigeria’s (CBN) decision to hike interest rates was anticipated.
In an interview with Pathway News on Tuesday in Abuja, Uwaleke responded to the Monetary Policy Committee’s (MPC) decision to increase the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.25 percent to 26.75 percent.
Pathway News reports that CBN Governor Yemi Cardoso announced the MPC’s decision to further raise the MPR by 50 basis points. The committee also adjusted the asymmetric corridor around the MPR to +500/-100 from +100/-300 basis points. Additionally, it retained the Cash Reserve Ratio (CRR) of Deposit Money Banks at 45 percent, Merchant Banks at 14 percent, and the Liquidity Ratio at 30 percent.
This marks the fourth consecutive hike in the MPR since February, moving the rate from 18.25 percent to 26.75 percent.
“I had predicted they would do a minimum of 50 basis points or a maximum of 100 basis points in July, having done 750 basis points between February and May,” Uwaleke noted. “It is good that they chose the floor, which is a sign that a complete halt is most likely in their next scheduled meeting in September.”
However, Uwaleke expressed concern over the adjustment of the asymmetric corridor. “The adjustment to the asymmetric corridor around the MPR is a major source of concern,” he said. “The MPC communiqué did not provide any explanation for increasing the Standing Lending Rate (SLR) from +100 to +500 and the Standing Deposit Rate (SDR) from -300 to -100.
“With an MPR of 26.75 percent, banks will now get loans from the CBN at 31.75 percent while they will be remunerated for their excess deposits at 25.75 percent. This will further squeeze liquidity from the banking system and increase the cost of credit, with adverse consequences on output and the equities market,” Uwaleke concluded.
