CBN Hikes Monetary Policy Rate From 11.5% To 13%

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cbnThe Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR)  from 11.5 percent to 13 percent, citing aggressive inflationary trends in the country and across the globe.

The governor of the CBN, Mr. Godwin Emefiele,  disclosed this at the end of the Monetary Policy Committee meeting in Abuja, this afternoon.

According to him, all other parameters were retained with +100/-700 basis points around the asymmetric corridor; Cash Reserve Ratio at 27 percent and Liquidity Ratio at 30 percent.

He said that global supply disruptions occasioned by Russia’s invasion of Ukraine and the resurgence of the COVID-19 in China, the hub of global manufacturing, had resulted in unprecedented food and energy prices which have triggered high levels of inflation globally.

Mr. Emefiele said that the CBN faced the dilemma of bringing down the inflation rate and at the same time implementing policies that would push growth.

He said that the situation required taking decisions in two opposite directions and that as such tough decisions must be taken.

His words, “This communique has spoken very extensively about the concerns about the global rise in inflation price levels.

“You all would have seen that the price of crude oil, quite unexpectedly, has been at above $100 per barrel, in fact, Nigeria’s Bonny Light, as of yesterday was about $116 a barrel, and what this means is that yes, whereas crude prices have gone up per barrel but at the same time, the cost of refinery and ultimate price, or the product, or the pump price at the station will naturally have gone up.

“This is a global phenomenon and I was watching CNN a few days ago, and one of the analysts was talking about an incredible distortion of the financial markets in the United States.

“And I said yes, well, welcome to a situation where, whereas inflation is rising to unprecedented levels in the US and other economies, growth is also coming down and if you must tackle inflation, prices, and at the same time you want growth, then you know that you are faced with some compelling dilemma as to what to do.

“If you like to see inflation come down, but at the same time you want growth to go up, to achieve this, you have to make decisions that are in opposite direction and that brings to bear as to what type of skills do you have, have you put in place to ensure that you’re able to manage these two in a way that you maintain a balance where you see a moderation in inflation, and at the same time you grow your economy.

“For the global economy, as I said, we’ve seen inflation in the US hit 8.3%, unprecedented in the decades. In the Euro area, we’ve seen inflation hit 7.4%, in the UK 9%, in China to 2.1% in India, about 7.7%.

“These are price levels that are unprecedented in decades and that is the reason the global economy, particularly the central banks, or monetary policy authorities are globally thinking that there is a need for them to, confront inflation and to do this means that a lot of tough decisions had to be taken.

“For us in Nigeria, you would have observed that in the last two and half years, what we have been saying is that we want to pursue a policy of price stability that is conducive to growth and that’s why somehow we have used our development finance intervention facilities, which has actually yielded positive results and has helped to drive our economy.

“We’ve used that to drive growth, while at the same time, we tried as hard as possible to maintain a hold position while looking at the outward level of liquidity in the industry, to be able to moderate inflation at a level that does not fault the growth and the economy of our country.

“But, with what we have seen globally, either in the area of supply chains in the area of increase in prices of petroleum products and the rest of them, we have seen aggressive growth in inflation in Nigeria between March and April of 2022.

“And, the forecasts from our statisticians, both in CBN and the NBS as well as our colleagues in research and monetary policy is that unless something drastic is done or significant actions are taken, it may be difficult for us to really rein in inflation if we don’t do something immediately.

“That is the reason we felt, okay, for monetary policy, like I said three things, one use development finance tools to drive growth and see to how you can use those same tools through the grand scheme of facilities are low-interest rate 5%, 10-year loan with two years moratorium and single-digit interest rates to see how you can use that to drive agriculture and manufacturing output to a level where we can even be seen to be positive on prices, thereby moderating prices that is one.

“So, what do you achieve? You achieve output growth, manufacturing agricultural output, through our various intervention target credit facilities and SMEs, you can boost consumption expenditure and through that boost growth.

“But by the fact that you are boosting manufacturing and agricultural output, what you’ll find is that we’re also positively impacting prices, which also is effectively tackling inflation.

“The MPR felt that we need interest rates to move up, particularly in the non-profit sector that we’re looking at.

“There is need for the interest rate to be signaled and be made even more aggressive because people would have expected a rise would have done signaling but MPC felt that that the 150 basis points will be at will be necessary to really show that we want to truly trim inflation and rein it into a level that we think can begin to reverse rather than continuing to go up.

“So, what are we doing to make sure that this does not affect growth, of course, you will expect that the lending rate will go up, yes, the lending rate will go up in the non-priority sector. We’re not going to deny that.

“But at least our priority sectors, where we will remain committed to MPC and co-management, continued development finance activities at single-digit interest rates for 10 years long and two-year moratorium, whereas what to call the nonpriority ones.

“The goal is that we should be able to use that as the basis to see how we’re able to tame inflation, to the level that we think is comfortable.

“What is important here is that these decisions have been taken, because we felt that they may continue in the next couple of months to be an aggressive acceleration in inflation.

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