BY CHARLES ABUEDE
The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), after its meeting on Tuesday chaired by Godwin Emefiele, the bank’s governor, raised policy rate by as much as 150 basis points to 13 percent and retained all other parameters, including the asymmetric corridor of +100/-700 basis points around the MPR; the CRR at 27.5 percent; and the Liquidity Ratio at 30 percent.
The decision puts the CBN in line with steps being taken by other central banks around the world in different attempts to curb money demand growth and upward movement of domestic prices.
Just as was anticipated by a myriad of analysts including those at Business A.M., who had projected the possibility of a rate hike by the CBN Monetary Policy Committee suggesting a marginal 25 basis points, the decision to raise the rate aligns with the point made by this newspaper that the uptrend in inflation had served the committee à la carte, giving it clear reason for a tightening stance in order to rein in the current rise in inflation and avert the adverse effect on economic growth.
It follows the pattern just like it did in May 2020 at the bimestrial gathering, when the MPC tweaked the rates as a result of the coronavirus pandemic, and also to stimulate spending and act pro-growth, and then had to loosen it at the next meeting to 11.50 percent from 12.50 percent.
Nigeria’s headline inflation had risen to another high, according to the National Bureau of Statistics (NBS), as it crossed the 16 percent mark to reach 16.82 percent in the face of the festivities and commencement of the planting season. In March, inflation had printed 15.92 percent. The increase was 1.3 percent points lower than the 18.12 percent recorded in April 2021 indicating a slowdown in the headline index but showing an accelerated increase in prices across all components that yields the headline index.
Governor Emefiele said the decision was made from the deep concerns about the continued uptrend of inflationary pressure, which the committee said may be inimical to growth, and thus hinder the full recovery of the economy.
He also said the committee, in taking the decision for a rate hike, identified several supply-side factors which may be contributing to inflationary pressure, emerging evidence shows that money demand pressure is on the rise and is unlikely to abate until 2023 general elections are concluded.
While reading out the policy communiqué from the meeting in Abuja on Tuesday, Emefiele said, “After carefully reviewing the developments of the last two months and the outlook for both the domestic and global economies, as well as the benefits and downsides of each policy option, the Committee decided to raise the Monetary Policy Rate (MPR) to rein in the current rise in inflation as members were of the view that the continued uptrend would adversely affect growth.
“In the current circumstance, the Committee was of the view that it was confronted with the choice of either to hold all policy parameters constant to allow previous policy measures to continue to support growth or tighten the stance of policy to curb money demand growth and upward movement of domestic prices. A loosening option would likely result in an increased liquidity surfeit, a rise in inflationary pressure, and further pressure on the exchange rate.
“The choice of holding, in the view of members, would not only continue to support growth, even though moderately, but will also allow the growth of money demand to continue at the current pace, leading to the uptick in inflationary pressure. While growth concerns remain paramount to the committee, the persistent uptick in domestic price levels is clearly a downside risk to growth that must be addressed urgently.
“While it may seem contradictory to raise rates in the face of fragile growth, this is the dilemma that most central banks around the world are grappling with at the moment. Yet, on balance, it is quite clear and compelling that tackling inflation is more urgent in the sequence of policy objectives. In this regard, the MPC urged the bank to redouble its efforts at supporting the priority growth-enhancing sectors of the economy while urging the Federal government to do more to provide a safe and secure environment for economic agents to boost activities and growth,” he said.
