Rising inflation again compelled the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), to further push interest rate for the sixth consecutive time to 18.5%, its highest level since November 2002.
The MPC, yesterday at its meeting, increased the Monetary Policy Rate (MPR), the standard for banks’ on-lending by 50 basis points, from 18% pegged at its last meeting in April.
Nigeria’s headline inflation jumped to 22.22% in April from 22.04% recorded in March, according to the National Bureau of Statistics (NBS).
The CBN Governor, Godwin Emefiele, who read the communiqué at the end of the MPC meeting at the CBN headquarters in Abuja, revealed that 10 members voted to raise the MPR by 50bps while one member voted for a 25bps increase.
However, members unanimously voted to retain all other parameters at current levels — the Asymmetric Corridor around the MPR at +100bps/-700bps, Cash Reserve Ratio (CRR) at 32.5%, and Liquidity ratio at 30.0%.
Explaining the rationale for the rate hike, Emefiele said: “Our actions to increase the MPR rates are potent because the inflationary pressures you see today confronting us are a global phenomenon and this started in 2022.”
Indeed, Central Banks around the world continue to hike interest rates to contain the surge of inflation that came as economies recover from the pandemic shutdowns.
Emefiele also said the Committee was concerned that headline inflation remains high largely due to a number of non-monetary factors outside the reach of the CBN.
These include intermittent scarcity of premium motor spirit (PMS) popularly called petrol and expectations of its short-term price hikes as well as lingering challenges confronting the food supply chain.
The Committee therefore called on the fiscal authorities to explore other avenues to expand the fiscal safety net and urgently address legacy challenges and emerging shocks impeding food supply.
“The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation,” he added.
Our actions to increase the MPR rates are potent because the inflationary pressures you see today confronting us are a global phenomenon and this started in 2022.
Economic performance
Emefiele admitted that the MPC was thorn hold or raising rates marginally to offset the moderate increase in headline inflation, adding that maintaining or loosening the rate would be counterproductive, as it could further exacerbate the inflationary pressure..
In the end, the balance of the argument was sufficiently in favour of further smaller rate hikes to:
- Consolidate the gains made so far;
- Support the efforts towards moderating demand-pull inflation;
- Narrow the negative real interest rate gap; and,
- Boost the MPC’s credibility following the earlier forward guidance to continue to tighten when confronted with unabating price pressures.
On the general economic performance, he said the Committee noted the positive performance and growth in the gross domestic product (GDP), which it attributed to the sustained growth in the services sector, progressive uptrend in economic activities, and sustenance of CBN’s broad-based support in growth-enhancing sectors.
The Committee however stressed the importance of addressing the shortfall in Nigeria’s crude oil production levels, currently at 1.1 million barrels per day (mbpd), which he said poses a considerable risk to the economy, and to ramp up levels to meet OPEC-allotted quota of 1.8 mbpd.
Nevertheless, the MPC expects that real GDP will continue its moderate recovery over the rest of the year even as legacy headwinds linger, and projects the economy to grow by 3.03% year-on-year by 2023 end.
