Against what many economists and financial analysts have predicted as a likely outcome of the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) bi-monthly meeting, the committee after its two days meeting further increased the benchmark interest rate by 100 basis to 14 per cent from 13 per cent.
Some analysts had predicted that the MPC would retain the lending rates in the market after its July meeting. For instance, analysts at Cordros Securities in its daily research on Monday said the MPC would keep rates unchanged despite external pressure.
The analysts said, “On balance, we expect the committee to retain the MPR at 13.0 per cent alongside other monetary policy parameters to allow previous policy actions to permeate the economy.
“However, we expect the committee’s tone to be hawkish in the light of the tightening of monetary policy by global central banks and the election spending effect on inflationary pressures.”
But speaking after the MPC decisions, the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, said the Monetary Policy Committee (MPC) will continue to raise benchmark interest rates as long as inflationary pressures continue.
The committee had resolved to increase the MPR by 100 basis points from 13 per cent to 14 per cent, retain the asymmetric corridor at +100 and -700 basis points around the MPR, retain CRR at 27.5 per cent, and retain the liquidity ratio at 30 per cent.
Rising from the meeting yesterday, Emefiele said the decisions to raise the Monetary Policy Rate (MPR) had been unanimous as holding rates or loosening had not even been considered by the 11 members of the committee. One member had voted to raise the rate by 150bps, another had proposed a 75bps hike while three and six members had voted for a 50bps and 100bps increase in benchmark interest rate.
Stating that inflation can be a terrible scourge that is capable of totally obliterating the purchasing power of the weak and the vulnerable, Emefiele said the weakening purchasing power will also lead to heightened unemployment and will ultimately retard growth.
“We have to be very careful about the rate of acceleration of pricing or inflation it is a very serious matter that 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 to dampen the size of inflation.
“In Nigeria, we have tried at a couple of meetings to leave rates the way they are and 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.