cial experts on Friday said reduction of the Monetary Policy Rate (MPR) to 12.5 per cent from 13.5 per cent would likely drive more funds into the capital market.
They told the News Agency of Nigeria in Lagos that the reduction was a welcome development, but not enough to encourage credit expansion.
Prof. Sheriffdeen Tella, of Olabisi Onabanjo University, Ago-Iwoye, Ogun State, said the MPC’s decision would likely lead to redirection of funds into the capital market.
Tella, a professor of economics, described the MPR reduction as a welcome development.
He, however, said it was not low enough to encourage credit expansion which would increase investment and consequently output.
“The current rising inflation rate is not caused by excess money, but shortage of goods due to fall in production.
“Interest rates on intervention funds have been reduced to five per cent, but that fund is not available to all businesses or borrowers.
“For this period of COVID-19, lending interest rates above 10 per cent is too high.
“When interest rates are low, borrowing increases as well as outputs and inflation will fall, more so when food index is the major driver of inflation,”Tella said.
Speaking on shortage of foreign currency in the economy, he attributed the development to speculative activities.
“The current demand for foreign exchange is more from speculative angle as real production is yet to take off.
“To prevent further naira depreciation when demand for imports increases, the CBN will have to intervene more,” he said.
Omordion said the interest rate cut would further push down yield in the money market, thereby making more funds available for the private sector.
According to him, appetite for loan will likely increase with the reduced interest rate.
He noted that the low yield in the money market instrument might drive some funds to the capital market.
Omordion said that investors would increase their investment in the equities market to hedge against inflation.
He said that banks’ net interest margin might reduce, thereby affecting their profits.
Edited By: Remi Koleoso/Oluwole Sogunle (NAN)