The reduction of the Monetary Policy Rate (MPR) from 13 to 11 per cent would boost activities and investments in the stock market, an expert said.
Mr Uche Uwaleke, Head, Banking and Finance Department, Nasarawa State University, Keffi, said this in an interview with the News Agency of Nigeria on Wednesday in Abuja.
He commended the Central Bank of Nigeria (CBN) for the reduction, adding that the step would also encourage borrowing by small and large business owners and improve economic activities and employment.
The reduction was made by the Monetary Policy Committee of the CBN.
This is the first time in about six years that the committee will be reducing the MPR which is the anchor rate at which the CBN lends money to Deposit Money Banks.
The committee also voted to reduce the Cash Reserve Requirement from 25 to 20 per cent.
Also, the symmetric corridor was changed to 200 basis points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points, around the MPR.
Uwaleke said: "The reduction in MPR 13 per cent to 11 per cent means that interest rate will come down.
“This is good news for companies as it will reduce the cost of capital for businesses that borrow funds.
“Whenever you have liquidity in the financial market, you will have a corresponding increase in the capital market through volume and this will help the capital market to rebound.
“The reduction will also allay the fears that the economy will slide into recession because a lot of productive activities will now pick up," he said.
Similarly, the Registrar, Chartered Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, said the move would lead to a significant diversification of the economy.
He added that more funds would now be channelled to agriculture and solid minerals.
“This is what we have been clamouring for. The CBN is now ready to grow the economy because people can now access funds at a lower rate.
“But the 11 per cent is still high and so, we would like to see a reduction to about nine per cent so that there will be more liquidity in the economy," he said.