Breaking: Citing Inflationary Pressures, CBN Raises Interest Rate to 14%

By Nume Ekeghe

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate from 13 per cent to 14 per cent.

The MPR is the baseline interest rate in an economy while every other interest rate used within such an economy is built on it.

The apex bank had at is last MPC meeting in May hiked the interest rate to 13 per cent in its bid to curb inflation.

The decision was announced as members of the committee rose from its 286th meeting held in Lagos Tuesday.

Governor of the CBN, Godwin Emefiele, speaking at a press briefing after the MPC meeting Tuesday said the decision was taken due to concerns of the members of the committee about rising inflation which has soared to 18.60 per cent and the need to urgently curb it.

 He added that the CBN would continue to tighten rates to curb inflationary pressures.

 He said: “ We need to do more work on inflation. As long as we see inflation at a level that deters growth, the MPC is very determined that if inflation continues, we would continue to tighten rate.”

Emefiele said: “MPC noted with concern the continued aggressive movement in inflation even after the rate hike in the last meeting and expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen our fragile economy.

“As regards the decision whether to tighten or hold, the committee was unanimous and so did not consider both loosening and retaining rates at existing levels at this meeting.”

On loosening, he said the MPC felt it would worsen the existing liquidity conditions in the economy and further dampen the money market rate necessary to stimulate savings and investments. He said members also felt that loosening would trigger the weakening of the exchange rate which could pass through to domestic prices. MPC did not also consider holding because it suggests that the bank was not responding to both global and domestic price development as inflation numbers continue to trend upwards, Emefiele added.

On tightening, he said members were anonymous that given the aggressive increase in inflation, coupled with the resultant negative consequences particularly on the purchasing power of the poor as well as retarding growth, there was the need to continue to tighten. However, the policy dilemma was hinged around the level of tightening needed for inflation without dampening manufacturing output which could result in a higher cost of borrowing.

Committee resolved to increase the MPR by 100 basis point from 13 per cent to 14 per cent. Retained the asymmetric corridor at +100 and -700 basis points around the MPR, retain CRR at 27.5 percent, and retained the liquidity ratio at 30 percent.

Furthermore on inflation, he said: “Today, the last data released just about a few days ago was 18.6. MPC members feel we cannot just hold or continue to watch inflation grow the way it is rising. Something must be done to rein in inflation. We conducted a very serious analysis of data that was presented to us at this meeting. And we felt that there is a need, not just because we want to look at what other economies are doing, but also, the fear that whereas we are seeing some output growth as a result essentially of what we’re doing, development finance, but we need to do a lot more work to rein in inflation. MPC did not even take any look at the issue of whether to hold rate constant or to loosen it.”

“Some analysts say we should not continue to increase rates because we have increased the cost of borrowing for the borrowers. It may also weaken manufacturing output. We agree with that postulation. The important thing is that as long as we see inflation at the level that can retard growth, it must be dealt with while at the same time we are looking at how to use development finance tools to continue to push towards improved output growth.

“That is what we’re doing. MPC is very determined that if inflation continues at this rate particularly aggressively, we will continue to tighten because that is the only thing that I can say at this time.”

The CBN governor said: “Inflation can be a terrible scourge and what that means is that it is capable of totally obliterating the purchasing power of citizens of the country particularly the weak and the vulnerable and the poor. By the time it weakens the purchasing power of the vulnerable naturally will also lead to heightened unemployment and will ultimately retard growth.

“We have to be very careful about the rate acceleration of pricing or inflation.  It is a very serious matter to the policy committee because once you find that as inflation continues to trend higher it would no doubt adversely  begin to retard growth.

“Many countries both developed and developing economies have had to embark on very aggressive rate increases so as to dampen the size of inflation. Nigeria, what we have done in our own attempt to pursue a policy of price stability that is conducive to growth. We have tried at a couple of meetings to leave rates the way they are. But at the same time we are pushing on how to improve output.

“But of course, with the aggressive acceleration of inflation rates in Nigeria, we decided in May after almost two and a half years to raise rates  by 150bps.

He said: “ We need to do more work on inflation. As long as we see inflation at a level that deters growth the MPC is very determined that if inflation continues, we would continue to tighten rate.

“We conducted various analyses from various data and we felt there is a need not to only look at what others are doing.”

 Also, he noted that  the RT200 incentive, 100 for 100 had recorded gains in increasing foregin exchange inflows into the country.

He added: “The MPC was delighted that we are making progress with these initiatives. We are making progress for the 100 for 100. I think we have disbursed slightly above N50 billion to the 100 for 100 which is meant to really drive support for those who want to produce goods that can be exported out of the country to earn dollar revenues.

“Indeed, we are delighted that the race to $200 billion is yielding good results, the RT 200. We found out that we had received inflows as at June this year over $2.9 billion. You all know that during the first quarter of 2022, we disbursed N3.6 billion as rebates for those who have conducted export activities. Hence, for Q2 2022, we have this morning just approved the release and payment of rebates to those who conducted the export activities to the tune of N20 billion.

“This is because whereas we found out that, yes,  there has been a lot of exports but those exports were found to be eligible for the rebates were in the tune of over $600 million and that is the reason, we are paying slightly over N20 billion for Q2. We are very happy and delighted that a lot more people are embracing export in Nigeria. And indeed not only that they present export but as a result of incentives that were provided and the incentives that are being paid promptly and that export earnings are increasing.

“We had hinted that at some point, we will get to the point where the banks will not even need to come to the CBN to buy forex exchange to meet important needs of their customers. We are delighted that we are moving gradually in that direction and I am optimistic that these numbers will improve by around the end of the year.”