CBN’s Expected MPR

The Monetary Policy Committee is meeting on the 18th and 19th of September, and with their meetings comes the review of the macro economic situation in the country, and more importantly to set the monetary policy rate, i.e. the rate at which the CBN lends to commercial banks and other clients. This in turn sets the tone for interest rates on borrowings to individuals or corporates by commercial banks or other lending institutions. The current MPR rate is at 14% and experts believe that the CBN would still retain the rate (having retained the rate for 5 meetings in a row) as the foreign exchange market saw gains during the period and the CBN would be looking to consolidate gains.

Also the CBN would be looking to sustain recent improvements in domestic macroeconomic fundamentals, and with a reduction in the MPR rate, inflationary pressures may increase and this would worsen the inflation of the country currently at about 16 percent. Advocates for a reduction in the MPR however are placing emphasis on the increasingly high cost of funding business activities in the country which makes expansion by businesses stall and leaves business owners frustrated.

It is left for the CBN and the Federal government to decide what its priority would be going into the next MPC meeting. Would the focus be on sustaining the macroeconomic improvements by keeping the foreign exchange market stable and eliminating further inflation (by maintaining the current MPR), or would the focus be to spur growth and development in the economy through providing cheaper funds for business expansions or startup companies at the expense of worsened inflationary levels?