Against the backdrop of the continued weakening of the global economy due primarily to the persistent increase in energy prices, supply chain bottlenecks, rising inflation, looming food crisis, and sharp increase in interest rates leading to tightening external financial conditions and the volatility of the oil market, the Monetary Policy Committee (MPC) of the Central Bank has voted to move the Monetary Policy Rate (MPR) upwards by 100 basis points.
The MPR for November now stands at 16.50 basis points, up from 15.50 basis points in the preceding month.
A statement by the Governor of the Central Bank of Nigerià (CBN), Mr. Godwin Emefiele said the Committee considered the global inflationary pressures which have continued to trend higher and the financial markets which were also facing challenges, noting that this was indeed the trend in Nigeria, with inflation attaining 21.09 per cent in October, 2022.
He said the Committee in appraising the efficacy of its decisions at the last couple of meetings maintained that the decisions were beginning to yield the desired results, given that the rate of increase in inflation was beginning to decelerate
The MPC further noted that though the global economy was progressively weakening due to the various headwinds derailing the recovery, domestic output growth remained positive as a result of the combined support from fiscal and monetary policy. The MPC, therefore, urged both authorities to continue to harmonize their various policies to achieve the desired objectives of stable prices and steady growth.
In reaching the decision of whether to loosen, hold or tighten the stance of policy, the Committee noted that, given that all the causative factors, such as the Russia-Ukraine war, supply chain disruptions, slowdown in China, rising inflation in advanced economies as well as other headwinds a loosen option was not desirable in the immediate.
The Committee also felt that, with the rising inflation, loosening the stance of policy would lead to a more aggressive rise in inflation and erode the gains already achieved through tightening.
As regards whether to hold, MPC was of the view that a hold stance at a period close to Decembers festive season and expected heavy spending during the 2023 general election at a time of high inflation would greatly jeopardize the gains of the previous policy rates hikes and plunge the economy deeper into the inflation trap.
The MPC therefore decided to continue to tighten, but at a somewhat lower rate, noting that tightening the stance of policy would narrow the negative real effective interest margin and thus improve market sentiment and further restore investor confidence. MPC also felt that recent developments in terms of observed month-on-month deceleration in the rate of increase in inflation, suggests that the previous tightening policies were yielding the expected outcome. It therefore felt that sustaining the tightening would further consolidate the decline in inflation, albeit more significantly.
Aside increasing the MPR by 100 basis points, the Committee also voted unanimously to Retain the asymmetric corridor of +100/-700 basis points around the MPR; Retain the CRR at 32.5 per cent; and Retain the Liquidity Ratio at 30 per cent.