A Professor of Economics, Willy Okowa, has endorsed the recent move by the Monetary Policy Committee (MPC) to hike the interest rate, saying that it will lead to the reduction of the pressure on naira.

Okowa, who is of the University of Port Harcourt said the changes made were geared towards the reduction in money supply which should ultimately bring down the inflation rate.

“The changes are made to reduce money supply. A reduction in money supply should bring down the rate of inflation; reduce the pressure on the Naira, and improve our exchange rate,” he said.

He explained that the move would strengthen the naira such that imported items could be got at a cheaper rate, leading to the prices of goods dropping drastically.

It would be recalled that MPC in its extraordinary meeting on October 10 had raised the monetary policy rate by 275 basis points from 9.25 per cent to 12 per cent and had maintained the current symmetric corridor of +/-200 basis points around the MPR.

Also, the cash reserve ratio was raised from 4 to 8 per cent while the net open position was reduced to 1 per cent from 5 per cent of shareholders funds with immediate effect.

Meanwhile, some analysts have said the country needs to create a medium and long term exchange rate policy to strengthen the naira.

According to them, the monetary and fiscal authorities should determine the factors that would influence the exchange rate and develop short, medium and longer term strategies to support the naira.

The medium to long term target should be able to have a net foreign exchange surplus which could only be achieved through increased exports and minimal imports, they said.

They advised that, “economic manager should focus on expanding the productive and export base of the country by reforming, liberalising and providing infrastructure for the other sectors with potential for foreign exchange earnings: the reforms must be carried but with minimal disruptions of economic activities and without stifling growth.”

Vivian-Peace Nwinaene