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Financial experts commend MPC over benchmark rate reduction

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Lagos – Two financial experts have commended the decision of the Monetary Policy Committee (MPC) over the reduction in the benchmark rate, saying it signaled a new economic direction for the country.

Mr. Godwin Emefiele, Governor, CBN; Dr. Okwu Joseph Nnanna, Deputy Governor (Financial System Stability), CBN; Mrs. Aisha Ahmad, Deputy Governor, CBN; Prof. AdeolaFestus Adenikinju, MPC Member; and Mrs. Alice Karau, Ag. Director, Corporate Secretariat, CBN; at the CBN Head Office, Abuja, on Wednesday, March 28, 2018, following the assumption of duty of the new Deputy Governors and MPC members.

The experts, who gave the commendation in a separate interviews with the News Agency of Nigeria (NAN) on Tuesday in Lagos, said it was the right thing to do now that the election was over.

NAN reports that the MPC of the Central Bank of Nigeria (CBN) has cut down the benchmark lending rate from 14 per cent to 13.5 per cent to further promote economic growth.

This is the first time the rate has been altered since July 2016.

Dr Boniface Chizea, an economist, said the reduction in the Monetary Policy Rate (MPR) from 14 per cent to 13.5 per cent would boost economic activities and increase productivity in the country.

Chizea, Chief Executive Officer, BIC Consultancy Services, said the Monetary Policy Committee (MPC) decision was a wise one because the inflation rate at 11.31 per cent was dropping.

Chizea said apart from the decline in the inflation rate, the country had recorded positive growth in the Gross Domestic Product (GDP) standing at 1.92 per cent in 2018 with a forecast of three per cent increase as well as accumulated foreign exchange reserves and oil price improvement.

He said: “So, there is every reason for the benchmark rate to come down. Even, the inflow of funds coming from overseas to the country is on the increase as investors are coming in.

“Everything is okay, so no reasons not to reduce the rate,” he said.

On the effect of the reduced benchmark rate on banks’ interest rates and with the declining inflation rate, Chizea said that might not show immediately.

“What is most important is that psychologically, the central bank has spoken and they have told the whole world that things are getting better,” he said.

The former banker said that the reduced interest would significantly make borrowing cheaper.
“It means that those economic agents on the margin that have problems with the 14 per cent should now be able to borrow. If that happens, they may now give a boost to economic activities in the country,” he added.

Also, Mr Johnson Chukwu, Managing Director of Cowry Assets Ltd., said the reduction in benchmark rate was an indication that the monetary policy committee had moved from its contractionary stance to accommodative induced one.

According to him, the monetary authority’s decision emphasised an economic growth as against price stability.
Chukwu said: “If the inflation rate is 11.31 per cent and the monetary policy rate is 13.35 per cent, the reality is that we are still going to enjoy what is called positive yield income because the interest rate is higher than the inflation rate.

“The Nigerian environment is particular in it’s own way in the sense that the monetary policy will be a guide in showing the direction of government orientation and may not neccessarily be the key determinant of interest rate in the environment.

Breaking: Nigeria’s inflation rate drops to 11.37 per cent – NBS


“I don’t expect that the lending rate to immediately trend downward.
“There are certain factors that lenders take to cognisance in determining the lending rates.

“However, the fact is that it will force down yields on some of the debt instrument because it shows that the central bank is ready to have an accommodative policy stance.

“Also, I do not imagine that major determinant of what the lending rate will be because it is determined by several other factors including cost of fund and operation which may not necessary change with the MPR.(NAN)

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