May 24 (Lagos) - The Monetary Policy Committee (MPC) concluded its 2-day meeting today, and unexpectedly hiked the benchmark interest rate by 150bps to 13.00% (the first time since July 2016, from 12% to 14%), while leaving other key parameters constant. Please see below, a summary of the committee’s decisions:
- MPR increased to 13.00% from 11.50%
- Retain CRR at 27.50%
- Retain Liquidity ratio at 30.00%
- Maintain an asymmetric corridor at +100/–700 basis points around the MPR.
At the MPC press briefing today, CBN Governor, Godwin Emefiele emphasized the fact that attacking the spiraling inflation (currently at 15.92% Y-o-Y as at March 2022) is more urgent in the sequence of policy objectives (CBN’s inflation target range is 6% - 9%), while also acknowledging the reality that it may seem contradictory to raise rates in the face of fragile growth, but it is a dilemma that most central banks around the world today are grappling with at this time.
Easykobo reaction.
Finally we say, the CBN realizes that the high inflation is a real concern and has been for the past 5-7 years. The policies of the apex bank over this period led to wide erosion of Nigerian consumers buying power as well as scarcity of available goods due to the constant exchange rate supply as a result of multiple devaluations and increase in cost of doing business.
The MPR fiasco started from November 2015 MPC meet where the same CBN Governor suddenly cut the benchmark lending rate against all economic theories in a hope that somehow the real lending rates in the economy will come down. However what happened was a sharp decline in the value of the local currency and only 3 months down the line the same Governor then increased the interest rate but it was too late as the damage was done. It was clear at that point that economy was now being handled in a trial and error methodology. People were still complaining about Naira hitting 400 to 1 Dollar in those days. Fast forward 5-6 years and we have the Naira trading around 600 to a Dollar in the parallel markets.
The hike in the MPR is necessary but does not go far enough and more aggressive hikes will be required to bring inflation in control. We need to get the MPR above the inflation rate quickly if we have to start thinking about controlling inflation, especially in food items.
This move will also bring people to start investing in Nigerian treasury bills again and also start saving in Banks because the policies of the CBN over the past 5 years had simply made it unattractive to invest in fixed income products.
reporting for easykobo.com Tuesday, May 24 2022 from Lagos, Nigeria