Some financial analysts on Friday said the unexpected reduction of the Monetary Policy Rate (MPR) from 13.5 to 12.5 per cent, as announced by the Central Bank of Nigeria (CBN) was contrary to their expectations.
The analysts expected a hold decision would be taken as happened during the last meeting.
The News Agency of Nigeria reports that the Monetary Policy Committee (MPC) of CBN on Thursday reduced MPR or the controlling lending rate to 12.5 per cent and left other monetary policy parameters unchanged.
“The reduction is uncommonly steep by an unusual 100 basis points. A reduction from 13.5% to 12.5%, the lowest rate in four years. The committee advanced the reason as the need to reflate the economy.
“What the unfolding scenario portends is that citizens should brace up for a spike on the rate of inflation which had already been on the uptick as substantial liquidity is being injected into the economy as a result of the quantitative easing.
“The gradual unlocking of the economy to resume activities might result in the anticipated contraction of the economy not being as steep as feared.
“By this move it is clear that focus on the rate of exchange particularly with regard to the attractiveness of investments to foreign investors is for once not a major thrust of policy.
“Well at least we now have some movement in the critical indices as opposed to the fact that they have remained sticky for a long time now,’’ Chizea said.
According to him, it is important that we witness focused implementation so that the expectations of a reflated economy will be achieved in the not distant future.
“The key thing the MPC did is to send a message to the economy that it is ready to adopt a bit of an accommodative policy. That is, it is the intention of the CBN that credit should flow to the economy at the same pace.
“That is the primary motivation of reducing the MPR from 13.50 per cent to 12.50 per cent.
“The immediate implication of this is that lesser cash will flow into the economy through commercial banks’ lending.
“Also this will address to some extent inflation trend occasioned by the COVID-19 and as well reduce the pressure on the naira by slowing down international trade,” he said.
The argument by analysts for a hold decision was premised on the challenge confronting the country as it contends with the dual challenge of the pandemic, which is affecting the economy.
The analysts also noted the collapse of the oil market, which at some point saw the Brent benchmark price dropped as low as under 20 dollars a barrel.
Edited By: Edwin Nwachukwu/Adeleye Ajayi (NAN)