For the third time in an aggressive attempt to tame the nation’s headline inflation rate currently at 33.69 percent, the Central Bank of Nigeria has raised the Monetary Policy Rate benchmark.
The CBN governor, Olayemi Cardoso said the aim was to allow the gains of previous tightening to have a sustained impact on other components of the drivers of inflation, especially the food component.
The Monetary Policy Committee of the central said previous rate hikes – 200 basis points in March and 400 bps in February – have started yielding the desired results including exchange rate unification and moderation in headline inflation except the food component of the curve, while urging the fiscal authorities to secure farming communities to ensure food security across the country.
At its meeting yesterday (Tuesday) 12 members of the MPC voted to raise the MPR by 150 basis points to 26.25 percent from 24.75 percent, while leaving other policy parameters constant. The MPC retained the asymmetric corridor at +100/-300 basis points; retained the Cash Reserve Ratio at 45 percent; retained the Liquidity Ratio at 30 per cent
Presenting the outcome of the two-day meeting of the MPC yesterday, Cardoso said the 12-man committee of MPC was faced with the option of either continuing with policy tightening or holding to observe the impact of previous rate hikes. “Following an extensive review of risks and the near-term inflation outlook, the balance of risks suggests further tightening of policy to build on the benefits of previous rate hikes,” he stated.
“The tools the central bank is using are working. These are things that need to take their own time. I am confident that we are beginning to get some relief. In another couple of times, we will get a more positive outcome,” Mr Cardoso said.
He said MPC members focused on the best policy approach to continue to guide the economy towards achieving an overall macroeconomic balance. He said the central bank has commenced dialogue with some investors on how to make the financial sector more robust and the market a lot more transparent, which he said would give them the added confidence to invest in the Nigerian market.
MPC expressed concern over the rising cost of transportation of farm produce; infrastructure-related constraints along the line of distribution network; security challenges in some food-producing areas; and exchange rate pass-through to domestic prices for imported food items.
In reaction, economic analyst, Dr Chijioke Ekechukwu said a continuous increase of MPR “is not going to control inflation,” adding that “It is rather going to continue to increase it, as the cost of funds will rise. Consumers will ultimately bear this through higher prices of goods and services.” He however said the central bank should be given the benefit of the doubt to prove that its price control mechanism would tame inflation.
