Leading market operators have harped on the imperativeness of the gradual reduction of the current Monetary Policy Rate to be benchmarked to the same rate as the inflation rate.
This call was made at a press briefing organised by the coalition of market operators on Nigerian capital market comprising of the Chairman, Association of Issuing Houses in Nigeria (AIHN), Mr Victor Ogiemwonyi; Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Mr Emeka Madubuike; President, Chartered Institute of Stockbrokers (CIS), Mr Albert Okumagba and General Secretary, ASHON, Mr Akin Akeredolu-Ale.
Reacting to the outcome of the Monetary Policy Committee (MPC) held in Abuja, recently, Mr Ogiemwonyi stated that the current MPR at a double digit of 13 per cent with an inflation rate of eight per cent would not augur well for the economy.
“The MPR at 13 per cent is hurting the economy. We are advocating a situation where the MPR is bench-marked the same rate as the Inflation Rate, which is currently at eight per cent,” he stated.
Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
Also, inflation rate is a measure of how fast a currency loses its value. That is, the inflation rate measures how fast prices for goods and services rise over time, or how much less one unit of currency buys compared to one unit of currency at a given time in the past.
According to Mr Ogiemwonyi, the Momentary Policy Rate (MPR), currently at 13 per cent was not only discouraging demand but also a disincentive to investment in this environment.
He noted that if the Central Bank of Nigeria (CBN) could successfully maintain an inflation rate, currently at 8.0 per cent, which is below 10 per cent in the last two years, it could also work towards the reduction of the MPR.
The AIHN boss also said another worrisome effect of the high interest rate is the lack of flow of credit in the financial system, arguing that the consequence of the high MPR is also seen in high yields from investments in bonds and treasury bills, which has discouraged investments in the capital market.
Corroborating, Mr Okumagba noted that the interest rate is a veritable tool in national development and is reflective of the level of development of the capital market.
“In addition to aiding economic development as a whole, it also sends signals about the expected dynamics of the capital market. A high interest rate discourages long term investment and lowers demand generally; whereas a low interest rate regime stimulates demand and helps with capital formation for long term investment,” he stated.
The CIS boss also decried the low level of contribution of the capital market to the Gross Domestic Products (GDP) of the country.
He added that most major developments and investments that have taken place in the capital market has always been driven by the private sector and urged the government to invest in the capital.
“If government believes in the capital market they will not be financing the railway projects and other major projects without the approaching the capital market for funds,” he noted.
More so, Mr Madubuike noted that it would be difficult for the country to develop if the capital market is underdeveloped.
“No country will develop if the capital market is not developed. Why do the foreign investors still come despite the inherent exchange risk? It is because our market is attractive and productive,” he stated.
He implored Pension Fund Administrators (PFAs) to increase their investments in the capital market, which is currently at about 12 per cent, since the law allows them to invest 25 per cent.
Furthemore, the market advocated for a further devaluation of the naira, which they said would increase the presence and flow of the currency to the common man.
Source : Tribune