By Ademola Alawiye

Thursday, 27 Jan 2011

Financial analysts have expressed divergent views on the new benchmark interest rate announced by the Monetary Policy Committee of the Central Bank of Nigeria on Tuesday.

In a move aimed at checking inflation ahead of the April elections, the committee increased the MPR by 25 basis points from 6.25 per cent to 6.5 per cent.

The MPR is the anchor rate at which the CBN lends to Deposit Money Banks for onward lending to customers and investors.

According to an economist, Dr. Ayo Teriba, who spoke to our correspondent in a telephone interview on Wednesday, the interest rate should not have been increased further.

He added that the policy stance of the CBN should be expansionary, and not contractionary.

He said, “I don’t see any reason why the interest rate was increased. Inflation has been dropping for months, so why the continuous tightening policy? The worry over inflation is too much, and I think the reasons are frivolous.

“If the MPC rate is too high, it can hurt the economy. You don’t anticipate inflationary threats. Let them wait until it poses threats before they start taking these measures.”

The Chief Research Analyst, Stakes Capital Limited, Mr. Sanyaolu Kehinde, said the action taken by the apex body was to curb inflation.

He, however, pointed out that the CBN should not be too concerned with the figures, noting that the most important thing was a good infrastructural base.

He said, “The reason for the increase in interest rate is to curb inflation. The CBN has increased the interest rate in anticipation of the money that will find its way into the system.

“Basically, it is to curb the money that will be released into the system during the elections and also in anticipation of the fact that the banks will soon start to lend following the purchase of bonds by the Asset Management Corporation of Nigeria.

“However, I don’t think we should be too bothered about figures. The CBN is just trying to do its job, but until we have a good infrastructural base, these figures will not matter in the long-run.”

The Regional Head of Research, Africa, Global Research, Standard Chartered Bank Limited, Ms. Razia Khan, said, “The CBN will still prefer a gradualist approach, gauging the impact of its tightening as and when it acts. But the trend in the market interest rates should be clear enough. The tone has been set for 2011, and we expect further steps to tighten policy in the months ahead. “This time, the tightening is for real. A key question, going forward, is how much more appetite for tightening the CBN has.”

Source: Punch