Yet again, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the benchmark interest rate to 18 per cent amid naira scarcity.
The CBN Governor, Godwin Emefiele, made this known Tuesday while addressing journalists after the committee’s meeting at the CBN headquarters in Abuja.
At the last MPC meeting in January, it was increased by 100 basis points, from 16.5 per cent to 17.5 per cent.
According to Emefiele, 10 out of the 12 Committee members present at the meeting voted for a moderate rise in the MPR
He, however, said that all other parameters remained constant.
The Asymmetric Corridor of +100/-500 basis points around the MPR, the Liquidity Ratio of 30 per cent and Cash Reserve Ratio (CRR) of 32.5 cent were thus retained.
According to Emefiele, the committee debated whether to continue the rate hike to further check inflation.
He said the MPC also considered whether to hold the rate to observe emerging developments and allow for the impact of the last five rate hikes to permeate the economy.
“Loosening in the view of the committee members would undermine gains so far achieved
“MPC observed the upward risk to price development and expectations of the removal of the Premium Motor Spirit (PMS) subsidy.
“These, in the view of members, provide a compelling argument for an upward adjustment of policy rate, albeit less aggressively,” he said.
He also said that the apex bank’s Naira redesign and cash withdrawal policies had resulted to a sizeable reduction in currency outside the banking system.
According to him, that is an indication of improvement in the potency of monetary policy tools of the CBN.
Amid the uncertainties being faced by Nigerians due to the scarcity of the redesigned Naira notes, the nation’s inflation rate rose to 21.91 percent in February compared to 21.82 per cent in January.
According to the nation’s statistics bureau, the February inflation rate showed an increase of 0.09 percent points when compared to January’s headline inflation rate.
Emefiele said the apex bank’s tightening measures had started to address inflationary pressure.
“We believe that as we continue this process that inflation will eventually begin to trend downwards,” he said.
“Whether we like it or not, between now and May, or the end of the administration, we will expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation, so we are not optimistic that prices will continue to come down because of these measures but we feel we need to continue to tighten,” he said.
According to him, the important thing is for the committee to watch the margin between the policy rate and inflation.
He said the margin has remained negatively wide, “and in economics, when you find negative real rate, it is a disincentive to new investment”.
He argued that everything has to be put in place by the monetary policy authorities to reign in inflation.
Also, Mr. Emefiele said the committee will be moderate in its steps to reign in inflation because it is conscious of the fact that when the rate is over-tightened, it could have negative impact on the banking sector, the financial ecosystem, and the stability of the economy.
