Prominent Nigerian economists have thrown their weight behind the Central Bank of Nigeria's recent decision to maintain the Monetary Policy Rate at 27 percent, asserting that the move could significantly reduce borrowing costs and stimulate lending to critical sectors of the economy.
Expert Endorsement of MPC Decision
In exclusive discussions with financial analysts, economic specialists described the CBN Monetary Policy Committee's choice as strategically sound and well-grounded. The decision, announced on Tuesday, maintains the current interest rate while implementing crucial adjustments to the standing facility corridor.
Ayodele Akinwunmi, Chief Economist at United Capital, expressed confidence in the MPC's approach, noting that although he had anticipated a reduction in the MPR, the committee effectively implemented a form of monetary easing through corridor adjustments.
"The decision is well grounded and sound," Akinwunmi stated. "What they did is still a type of monetary policy easing through the adjustments to the asymmetry corridor around the MPR."
Mechanism for Reduced Lending Costs
The key change involves narrowing the standing facility corridor from +250/-250 basis points to +50/-450 basis points around the MPR. This technical adjustment is expected to have practical benefits for the banking sector and ultimately for borrowers.
Akinwunmi elaborated on the expected chain reaction: "The narrowing of the corridor will immediately reduce the cost of borrowing from the CBN as the lender of last resort. Interbank rate should drop in the short term as the borrowing cost from the CBN will fall. This will lead to lower lending rates to the real sector of the economy."
Cautious Optimism from Academic Circles
Professor Uche Uwaleke, Executive Director of the Institute of Capital Markets at Nasarawa State University, characterized the MPC's decision as both timely and positive. He identified the corridor adjustment as a significant indicator of cautious policy easing by the central bank.
"This adjustment signals cautious operational easing, even as headline MPR remains elevated to continue managing inflation and FX pressure," Uwaleke explained.
The professor highlighted several potential benefits of the policy shift:
- Reduced marginal funding costs for commercial banks
- Decreased volatility in the interbank market
- Increased lending to Micro, Small and Medium Enterprises
However, Uwaleke sounded a note of caution regarding implementation: "The real challenge is whether banks will translate this corridor adjustment into actual lower lending rates."
Broader Economic Context
The monetary policy decision comes against the backdrop of improving economic indicators. Recent data from the CBN reveals that Nigeria's foreign exchange reserves have climbed to $41 billion, representing the strongest reserve position since December 3, 2021.
Professor Uwaleke emphasized that given Nigeria's current fiscal constraints, inflation risks, and the need to sustain economic growth, the MPC's overall decision was "quite appropriate."
The consensus among economic experts suggests that while the maintained MPR rate of 27% might appear restrictive, the accompanying corridor adjustments provide the necessary flexibility to encourage lending while continuing to address inflationary pressures and foreign exchange challenges.
