CBN: ‘MPC’ll retain all parameters, except CRR to check rising inflation’

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Professor Uche Uwaleke

A renowned Professor of Finance and Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke has predicted the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to retain all the policy parameters except the Cash Reserve Ratio (CRR) in the coming meeting.

Recall, Prof. Uwaleke had earlier predicted the CRR’s reduction from the current 27. 5 percent, which he believes would help cushion the rising costs of bank operations and liquidity challenges ocassioned by by the Covid-19 pandemic.

CBN on Thursday rescheduled the MPC meeting earlier scheduled for Monday and Tuesday, May 25 and 26, 2020, to Thursday, May 28, 2020.

However, Prof. Uwaleke said, “the rising inflation rate poses a challenge to monetary policy especially in the face of the need to stimulate economic activities through a lower interest rate environment and rescue the economy from recession.

“So, it puts the CBN in a dilemma and I expect the MPC to weigh the balance of risks in favour of economic growth in their next meeting. Because the impact of COVID’19 on the economy will feature prominently in the next MPC meeting.

“My expectation is that members will vote to retain all the parameters including the MPR at 13.5% to take care of rising inflation and the pressure on exchange rate except the Cash Reserve Ratio which may be dropped from 27.5% to possibly its previous level of 22.5% to allow the banks more liquidity room.

“I sense the CBN Governor may seize the opportunity of the meeting to announce some heterodox measures aimed at aiding financial intermediation by the Banking sector,” he said.

The National Bureau of Statistics (NBS) had reported that the Consumer Price Index, (CPI) which measures inflation increased by 12.34 percent (year-on-year) in April 2020.

This was 0.08 percent points higher than the rate recorded in March 2020 (12.26percent).

On month-on-month basis, the Headline index increased by 1.02 percent in April 2020. This is 0.18 percent rate higher than the rate recorded in March 2020 (0.84 percent).

Uwaleke said, “it is of interest that while core inflation, that is, all items less volatile farm products, is relatively under control at below 10%, the pressure is still coming from the food component which rose by over 15%.

“This should be expected in view of the border closure and increased demand for food on the back of COVID-19 lockdowns.

“As a matter of fact, the rate of increase in food inflation could have been higher if the federal government had not released grains from the country’s strategic Reserves.

“The way to cage it is to ensure that the stimulus packages get to farmers so that more food can be produced locally in the coming months considering that the borders may not be opened anytime soon due to COVID-19,” he said.

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