By Ademola Alawiye

Tuesday, 25 Jan 2011

There are strong indications that the Monetary Policy Committee of the Central Bank of Nigeria may keep the benchmark lending rate at 6.25 per cent at its meeting on Tuesday (today) following its effect on inflation rate.

A member of the MPC, who asked not to be named, told our correspondent in a telephone interview on Monday that the decision of the committee would depend on the developments in the money market.

He said, “All signs show that the benchmark lending rate will be maintained at 6.25 per cent in today’s meeting due to its effect on inflation rate and also to encourage credit creation in the real sector.”

He added, “I expect the MPC to reduce the asymmetric corridor around the monetary policy rate so that the Central Bank of Nigeria’s effective lending rate can remain at the current level. If this is done, bond prices will rise and cause yields to fall from the current high level and also encourage credit creation to the real sector of the economy.”

Inflation had dropped for a fourth consecutive month in December to 11.8 per cent, from 12.8 per cent in November. The latest inflation figure of 11.80 per cent represents the lowest level recorded since November 2009.

Meanwhile, analysts have said that they expected the MPC to keep the lending rates unchanged.

Analysts at FSDH Securities said it was expected that the MPC would maintain the current tight policy, and also approved some measures that would help to facilitate the funding of the infrastructural gap in the country.

Speaking in the same vein, the Managing Director, Sotice Investment Company Limited, Mr. Adedayo Toluwase, said the monetary authorities should continue with its contraction policy, saying that the inflation rate was responding to the policy.

He added that the authorities should formulate a stabilisation policy regime of aggressive liquidity mop up to achieve a single digit inflation rate.

The MPC at its November 23, 2010, meeting, maintained its policy stance by retaining the monetary policy rate at 6.25 per cent, adjusting the asymmetric corridor of interest rates by 200 basis points, implying Standing Lending Facility rate of 8.25 per cent and Standing Deposit Facility rate of 4.25 per cent.

It noted the high economic growth rate and the progress made towards restoring stability in the banking system, but however observed with concern the continued high inflation rate and reiterated the urgent need for fiscal consolidation and the continuation of comprehensive economic and structural reforms to remove supply-side bottlenecks.

 

Source: Punch