‘Nigeria’s Economy Facing Stagflation, Banks Under Pressure’- Uwaleke Faults MPR Hike

Nigeria’s first Professor of Capital Market Studies, Uche Uwaleke has warned the Central Bank of Nigeria to be careful with its hawkish monetary policy approach because the challenge currently facing the Nigerian economy is not just inflation but stagflation.

The reaction comes after the CBN Monetary Policy Committee raised MPR by another 200 basis points to 24.75 per cent on Tuesday.

The central bank Governor, Olayemi Cardoso said inflation will moderate by May 2024.

“This development is now driving undue pressure by banks on the CBN’s Standing Lending Facility and increasing the cost of funds generally.

“The CBN should recognise that the challenge currently facing the Nigerian economy is not just inflation but stagflation and to this end should equally have regard to growth concerns in future meetings of the MPC,” Uwaleke told THE WHISTLER.

At the MPC meeting in Abuja, the apex bank also adjusted the asymmetric corridor around the MPR to +100/-300 basis points.

The committee said it was necessary to retain the Cash Reserve Ratio of Deposit Money Banks at 45.0 per cent while the Cash Reserve Ratio of Merchant Banks was moved from 10 to 14 per cent.

“Much as tightening is necessary at this time in view of elevated inflation, MPC should tighten policy incrementally,” Uwaleke said adding that it should be “in a measured manner that optimizes the CBN’s policy tool kit without undue reliance on the monetary policy rate.”

In the February MPC meeting, the committee raised the benchmark interest rate by 400 basis points to 22.75 per cent.

“These considerations underscore the importance of the CBN’s commitment to the price stability mandate and the need to urgently bring inflation under control to ensure that the purchasing power of ordinary Nigerians is restored in the short to medium-term,” CBN argued.

But Uwaleke said the hawkish approach to “increase the MPR by 200 bps makes it a total of 600 bps in just one month if one adds the 400 bps delivered in February.

“This is in addition to a very high CRR of 45 per cent representing sterilised Bank deposits.”