Financial analysts have expressed divergent positions on the expected benchmark lending rate, ahead of the 83rd Monetary Policy Committee meeting on Monday and Tuesday.

While some analysts said the MPC could not afford to increase the Monetary Policy Rate further, others said the committee would increase the rate slightly because of inflationary threats.

Speaking with our correspondent on Friday, the Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, told our correspondent that it would be hard to justify an increase in the benchmark lending rate.

He said, “While it may not be too okay to further increase the lending rate, there’s need to mop up liquidity in the system. I think the right thing to do is to mop up liquidity without necessarily increasing the benchmark lending rate. In my view, a slight depreciation in exchange rate will have the same effect that an increase in lending rate will have.”

Also speaking, the Chief Executive Officer, Financial Market Dealers Association, Mr. Wale Abe, said that the committee would face a dilemma in taking its decision.

Abe said, “Inflation remains a threat, do you now continue to increase because of that? If you continue, it will create more problems for the economy because growth will be affected. Don’t forget the CBN has been trading off other things for inflation. If you reduce, there may be further inflationary problems. Personally, I think the MPC should maintain status quo. Adjusting lending rate is not something they should think of now.”

On the contrary, analysts at Afrinvest West Africa Limited, said that inflation would increase month-on-month in the near term.

The analysts in a note made available to our correspondent, said, “We expect the monetary policy committee to increase the benchmark rate by 25 basis points at its meeting next week (this week) in view of lingering adverse supply-push factors.”

Interest rates were hiked six times last year, rising from 6.25 percent to 12 percent between January and December, in an effort by the CBN to curb rising inflation and stabilise weakening naira.

The MPC increased interest rates six times in 2011, a development which stakeholders described as unhealthy for the manufacturing sector of the economy.

Source: Punch/Ademola Alawiye