WED, MAY 24 2023-theGBJournal |The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) ended its third meeting of the year today, opting to raise the Monetary Policy Rate by 50bps to 18.5%, and retained all other parameters.
This puts the country’s interest rate at its highest level since November 2002.
The Committee voted to maintain other policy parameters at current levels; the asymmetric corridor around the MPR at +100bps/-700bps, Cash Reserve Requirement (CRR) at 32.5%, and Liquidity ratio at 30.0%.
As we envisaged, the voting pattern shows that an aggressive rate hike was entirely out of the conversation at the meeting as 10 members voted in favour of a slower hike.
The Committee, according to the CBN Governor, Godwin Emefiele who announced the out come of the meeting, decided to unanimously stay resolute on the path of smaller rate hikes, after taking into account the global and domestic events since its last policy meeting.
In the domestic economy, headline inflation maintained its upward trajectory, currency pressures remain intact and there are signs the real GDP growth eased in Q1-23 primarily due to the CBN’s naira redesign drive.
Asides from the fact that global central banks are approaching the end of the interest rate hiking cycle, the MPC, according to Emefiele, has reached a point where overtightening becomes a concern even as the debate remains on what constitutes a neutral interest rate that will not hurt domestic growth.
He noted the dilemma for the Committee which was whether to continue its rate hike to further dampen the rising inflation trajectory or adopt a HOLD stance to observe emerging developments and allow for the impact of the last rate hikes to permeate the economy.
”The MPC was of the view that HOLD or Loosen options were not desirable at this time given that a HOLD may compromise the Bank’s decision to reign in the rising inflation, particularly when its in-house estimates had projected that inflation will continue to rise in the immediate months ahead before decelerating,” the CBN Governor said.
He said the option to LOSSEN was also considered undesirable because of its potential to compound the inflationary pressure, and widen the negative real effective interest rate margin and worsen the domestic financial and monetary market conditions, including triggering the Naira depreciation.
The CBN Governor before announcing the decision, noted that previous rate hikes have helped moderate growth in new credit, and reduced the pent up aggregate demand which had contributed to the inflationary pressures.
He said, ”members were unanimous in their conclusion that the current policy stance is indeed, impacting the targeted parameters and yielding the expected out come, albeit slowly.”
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