KEY POINTS
• Financial expert Uche Uwaleke expects the CBN to reduce the Monetary Policy Rate by 50 basis points at its 307th MPC meeting.
• He cited moderating inflation, exchange rate stability, improved foreign exchange liquidity and stronger external reserves as reasons for a possible cut.
• Uwaleke also called for fiscal and monetary policy coordination to be supported by a durable legal framework.
MAIN STORY
A financial expert, Prof. Uche Uwaleke, has projected that the Central Bank of Nigeria’s Monetary Policy Committee may reduce the Monetary Policy Rate by 50 basis points at its September meeting.
Uwaleke, Director of the Institute of Capital Market Studies and President of Capital Market Academics of Nigeria, made the projection in an interview with the News Agency of Nigeria in Abuja on Monday, ahead of the MPC’s 307th meeting scheduled for Monday and Tuesday.
The MPC had retained the benchmark rate at 26.5 per cent at its 306th meeting in July. It also maintained the Standing Facilities Corridor at +50 and -450 basis points around the MPR, while retaining the Cash Reserve Ratio at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks and 75 per cent for non Treasury Single Account public sector deposits.
Uwaleke said a 50 basis points reduction would be justified by the improvement in several macroeconomic indicators, including moderating inflation, relative exchange rate stability, better foreign exchange market liquidity and growth in 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 the formalisation of cooperation between the Federal Ministry of Finance and the CBN represented an important development for economic management, given the links between government spending, borrowing, liquidity, exchange rates, inflation and private sector credit.
He said the agreement could provide a structured basis for information sharing, common macroeconomic assumptions and the management of areas where fiscal and monetary policies could conflict.
“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 the next step should be to give fiscal and monetary coordination a more permanent institutional foundation rather than relying mainly on administrative arrangements.
According to him, the existing MoU could serve as a starting point, but coordination of such importance should eventually be supported by clear legislation.
“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 the fiscal authority should continue to oversee taxation, public expenditure and debt management, while the CBN should retain the independence required to conduct monetary policy.
He added that both institutions should exchange information, make relevant assumptions public and explain how their respective policies interact.
“The broader objective should be a coherent economic policy architecture in which monetary, fiscal, trade, financial and structural policies reinforce one another,” he said.
THE ISSUES
- A reduction in the MPR would lower the benchmark around which borrowing and other financial market rates are priced, although the extent to which this translates into cheaper credit would depend on broader market conditions and monetary policy transmission.
- Uwaleke’s projection is based on the combination of moderating inflation, exchange rate stability, improved foreign exchange liquidity and stronger external reserves. These factors form the basis of his expectation rather than a confirmed decision by the MPC.
- Fiscal and monetary policy coordination can affect how government borrowing, spending, liquidity management and interest rate decisions interact. Uwaleke argues that greater institutionalisation could reduce the risk of policies working against each other.
- The proposed legal framework would need to preserve the distinction between shared economic objectives and the independent instruments available to fiscal and monetary authorities. Uwaleke specifically argued against giving fiscal authorities control over monetary policy decisions.
WHAT’S BEING SAID
“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.” – Uche Uwaleke
“The MoU provides a framework for cooperation that goes beyond personal relationships between the Minister of Finance and the Governor of the CBN.” – Uche Uwaleke
“Such legislation should not create a mechanism through which fiscal authorities can dictate monetary-policy decisions.” – Uche Uwaleke
WHAT’S NEXT
The 307th MPC meeting is scheduled for Monday and Tuesday, when the committee will consider monetary policy conditions and determine its next policy position.
Uwaleke also called for further work towards establishing a statutory framework for fiscal and monetary coordination, including clearer responsibilities, information sharing and protection of the CBN’s operational autonomy.
BOTTOM LINE
Uwaleke expects the MPC to cut the MPR by 50 basis points, citing improving macroeconomic conditions. He also argues that stronger institutional coordination between fiscal and monetary authorities could support more coherent economic policy.
