Prof. Uche Uwaleke, an economist, on Tuesday commended the Central Bank of Nigeria for its plan to scale up the N50 billion credit to accommodate more households and Small and Medium Enterprises.
Uwaleke, an expert on Finance and Capital Markets at the Nasarawa State University Keffi, made the commendation in an interview with the News Agency of Nigeria in Abuja.
He was reacting to the outcome of the Monetary Policy Committee meeting held on Monday in Abuja.
NAN recalls that the MPC during its meeting endorsed the intended plan to increase the household and SMEs facilities to accommodate more of SMEs to help them recover easily from the coronavirus pandemic.
The don said the MPC’s decision to retain lending rates at 12.5 per cent and holding other policy parameters constant was expected.
Uwaleke said: “On the outcome of the MPC July meeting, the status quo was maintained.
“This means putting a hold to the accommodative policy stance signalled at the last MPC meeting in May when it reduced the MPR by 100 basis points from 13.5 per cent to 12.5 per cent.
“With inflation rate now at 12.56 per cent and above MPR, the MPC was not expected to reduce MPR any further since real interest rate is now negative with adverse consequences for capital inflows.
“The recent increase in the pump price of fuel and the planned unification of exchange rates represent downside risk to inflation.
“A further reduction in MPR even by 50 basis points from the current 12.5 per cent will result in widening the negative real interest rate which is inimical to capital inflows from foreign investors.”
The expert noted that a reduction in the Cash Reserve Requirement would have been ideal to free up liquidity for the Deposit Money Banks.
He added that in doing so, the challenge was its potential to put more pressure on the forex market and by extension on external reserves.
Uwaleke said for MPC to have held the policy parameters was expected in view of elevated inflation and mounting pressure in the forex market.
He said: “In order to discourage DMBs from parking money at the CBN, the MPC should consider (at its next meeting) widening the asymmetric corridor around the MPR from +2/-5 to +2/-7.
“By so doing, the Standing Deposit Facility drops from 7.5 per cent to 5.5 per cent thereby, compelling DMBs to on-lend the funds to the real sector.
“The reality is that monetary policy tools have been stretched to the limits, especially against the backdrop of weak transmission.”