Contrary to expectations of an increase in the monetary policy rate of the Central Bank, the Monetary Policy Committee agreed to hold the rate at 12%. Recall in their meeting in November the rate was hiked to 12%. In fact, the rate was hiked six times during the year from 6.25% at the beginning to the 12% it closed in 2011.

Apparently, the Committee has decided against increasing the rate further following the almost 100% increase from about a year ago. This Committee for the last one year had identified inflation as the real reason influencing their increase. However, they believed despite the hike in fuel price following the partial removal of subsidy, anticipated government expenditure and the new imposition of duties on certain food imports, inflation wasn’t expected to increase any much higher as prices tend to moderate overtime.

An MPR of 12% aims to ensure lending rates does not increase beyond the outrageously high 23% that we have now. As such rather than take a too optimistic view of inflationary trends especially as the 2012 budget spending kicks in, they would rather prefer keeping rates as they are.

Well, for the small business man out there, this “gesture” more or less just steadies the pain rather than reduce or aggravate it. I will attempt to analyze their decision within the context of the small and retail economy in a subsequent blog.

For now, the pain remains.


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