CBN benchmark interest rate hits 26.25% to maintain ‘past earnings’

The Central Bank of Nigeria has raised the benchmark monetary policy rate for the third time in an aggressive bid to control the country’s overall inflation rate, currently at 33.69 percent.

CBN Governor Olayemi Cardoso said the objective was to allow the advances of the previous adjustment to have a sustained impact on other components of inflation drivers, especially the food component.

The central bank’s Monetary Policy Committee said previous rate hikes (200 basis points in March and 400 basis points in February) have begun to yield the desired results, including unifying the exchange rate and moderating headline inflation. , except the food component of the curve, while urging the tax authorities. authorities to protect farming communities and ensure food security throughout the country.

At their meeting yesterday (Tuesday), 12 MPC members voted in favor of increasing the MPR by 150 basis points to 26.25 percent from 24.75 percent, keeping other policy parameters constant. The MPC maintained the asymmetric corridor at +100/-300 basis points; maintained the cash reserve ratio at 45 percent; maintained the liquidity ratio at 30 percent

Presenting the outcome of the two-day MPC meeting yesterday, Cardoso said the 12-member MPC committee was faced with the choice of continuing to tighten policy or waiting to see the impact of previous rate hikes. “Following an extensive review of the near-term inflation risks and outlook, the balance of risks suggests further policy tightening to reap the benefits of previous rate hikes,” he said.

“The tools that the central bank is using are working. These are things that should take their own time. I’m sure we’re starting to feel some relief. On a couple more occasions, we will get a more positive result,” Cardoso said.

He said MPC members focused on the best policy approach to continue guiding the economy towards achieving overall macroeconomic balance. He said the central bank has started a dialogue with some investors on how to make the financial sector more robust and the market much more transparent, which he said would give them greater confidence to invest in the Nigerian market.

MPC expressed concern over the rising cost of transporting agricultural products; limitations related to infrastructure along the distribution network line; security challenges in some food producing areas; and the transmission of the exchange rate to the domestic prices of imported food products.

Reacting, economic analyst Dr Chijioke Ekechukwu said a continued increase in the MPR “is not going to control inflation”, adding that “rather it will continue to increase it as the cost of funds will increase”. Ultimately, consumers will bear this through higher prices for goods and services.” However, he said the central bank should be given the benefit of the doubt to demonstrate that its price control mechanism would control inflation.

“There are other factors that drive inflation, which are not under the control of monetary policy. If a disease needs a combined dose of two drugs to be cured and only one drug is used, that disease will remain with the patient,” he stated.

Cardoso had stated in a recent interview that interest rates would remain elevated until the inflation rate recedes, as the Financial Times reported on Monday. Cardoso emphasized the adoption of orthodox policies to combat inflation, which soared to 33.20 percent in March from 31.70 percent in February.

He said that the rise in interest rates has had a discouraging effect on the foreign exchange market, so it has begun to moderate. “It is not a zero-sum game. “You lose on one side and you win on the other,” he stated.

Cardoso emphasized that the MPC is prepared to take the necessary measures to curb inflation, stating: “They will continue to do whatever is necessary to ensure that inflation goes down.”

Commenting on the new tariff increase, Center for the Promotion of Private Enterprise (CPPE) Executive Director Dr. Muda Yusuf said.

“We have seen even further tightening of monetary conditions in the economy.

My prayer was that the MPC would stop rate hikes for several reasons. Firstly, previous rate hikes have been quite aggressive and have hurt production and investments in the real sector. Most economic operators with credit exposure to banks have not recovered from the previous increases. Interest rates were already around the 30% threshold.

“Secondly, the current CRR of 45 percent has profound liquidity effects on the financial system. Both measures have discouraging effects on financial intermediation, which is the main function of banks in an economy.

“Third, the transmission channels of monetary policy are still very weak, given the level of financial inclusion in the economy. “This limits the prospects for the effectiveness of monetary policy,” he noted.

Meanwhile, he said, the new rate hike is an additional cross that investors who have exposure to bank credit lines must bear, adding that, however, a rigid monetarist provision is expected from the Central Bank, but “we have to take into account the costs to the economy.”

Hopefully, he said, with the positive outlook for domestic refining of petroleum products, “we can begin to see a moderation in the cost of energy and a pass-through effect on the general price level. This is a silver lining that is on the horizon right now. The necessary fiscal policy support is urgently needed to offset the adverse impact of extreme monetarism on the economy.”