Financial expert predicts 50 basis points reduction in MPR

A financial expert, Prof. Uche Uwaleke, has predicted a 50 basis points reduction in the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) at the ongoing 307th meeting in Abuja.

The Committee is holding the meeting from Monday to Tuesday. The expert made the prediction while speaking to journalists in Abuja on Monday.

Uwaleke, aso the Director: of Institute of Capital Market Studies at Nasarawa State University, Keffis, said a reduction in the MPR by 50 basis points would be necessary to moderate inflation, stabilise exchange rate, improve foreign exchange market liquidity and encourage accretion to external reserves.

“I also see a mild rate cut against the backdrop of the recently signed Memorandum of Understanding (MoU) between the minister of finance and the CBN governor on fiscal and monetary policies collaboration,” he said.

The expert said that the recent decision by the federal ministry of finance and the CBN to formalise their cooperation through an MoU on fiscal and monetary policy coordination marked an important development in Nigeria’s economic management.

“For an economy in which government spending, public borrowing, liquidity conditions, exchange-rate movements, inflation and private-sector credit are deeply interconnected, the institutionalisation of regular policy coordination is both timely and economically significant.

“The MoU provides a framework for cooperation that goes beyond personal relationships between the minister of finance and the governor of the CBN.

“It establishes structured mechanisms for information-sharing, aligned macroeconomic assumptions and the resolution of areas where fiscal and monetary actions might otherwise work at cross-purposes,” Uwaleke said.

He said that the next logical step should be to move fiscal and monetary coordination from administrative practice towards a durable institutional framework. The expert said the MoU could provide a useful foundation, but said an arrangement of such economic importance should ultimately rest on clear statutory provisions.

“Nigeria could consider reviewing and, where appropriate, amending the relevant provisions of the CBN Act 2007 and other fiscal-governance legislation to establish a transparent framework for fiscal-monetary coordination.

“The framework should also clarify the respective responsibilities of the fiscal and monetary authorities, establish procedures for setting broad inflation objectives, and protect the CBN’s instrument and operational autonomy.

“Such legislation should not create a mechanism through which fiscal authorities can dictate monetary-policy decisions. Rather, it should codify the distinction between shared macroeconomic objectives and independent policy instruments,” he said.

Uwaleke said that the fiscal authority should remain responsible for fiscal policy, taxation, public expenditure and debt management, while the CBN should retain the authority necessary to conduct monetary policy. “At the same time, both institutions should be required to exchange information, publish relevant assumptions and explain publicly how their policies interact.

“The broader objective should be a coherent economic policy architecture in which monetary, fiscal, trade, financial and structural policies reinforce one another. Indeed, Nigeria’s current circumstances make this institutional question especially urgent.

“The country has made measurable progress in rebuilding macroeconomic stability, but inflation, financing cost. The broader objective should be a coherent economic policy architecture in which monetary, fiscal, trade, financial and structural policies reinforce one another.

“Indeed, Nigeria’s current circumstances make this institutional question especially urgent. The country has made measurable progress in rebuilding macroeconomic stability, but inflation, financing costs, food and transport pressures, weak monetary transmission and the need for stronger private-sector credit continue to present difficult policy challenges,” he said.