More Hardship Predicted As CBN Plans Increase In Interest Rate

By Ikenga Chronicles August 8, 2018

More Hardship Predicted As CBN Plans Increase In Interest Rate

The hardship in the country may not be over yet with plans by the Central Bank of Nigeria (CBN) to increase the interest rate revealed. The apex bank plans the move to tighten the monetary policy in response to higher inflation ahead of the general elections in February.

A Bloomberg report on Tuesday quoted a CBN Deputy Governor, Dr Joseph Nnanna, as giving the indication on Monday on the sidelines of a conference in the resort city of Sharm El-Sheikh in Egypt.

Already, he said virtually all members of the Monetary Policy Committee(MPC) had supported the idea, that “the Monetary Policy Rate(MPR) should increase if inflationary pressures build up.”

But finance experts who have opposed to the idea, said increasing the MPR would make it difficult for businesses to raise funds and in turn, increase hardship.

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According to the report, the MPC has held its key rate at a record 14 percent since 2016 in a bid to prop up the naira and tame inflation after it spiked to double digits in the same year.

While price growth has since slowed to below the MPR, the panel has shifted from some members voting for rate cuts in January to three of 10 members favouring higher rates at the July meeting.

The CBN Governor, Godwin Emefiele, flagged the delayed passage of the 2018 budget of N9.12tn ($25bn) and pre-election spending as possible price risks in the second half of the year.

Nnanna said, “These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation. There’s a scope to raise rates before the elections in February.”

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He reportedly voted for a 50 basis-point increase in May. While the individual member statements from the July MPC meeting have not been released, one person voted for 25 basis-point hike and two wanted to raise the rate by 50 basis points.

“The central bank is still in the mood for tightening. How fast are we going to tighten is what members haven’t agreed upon,” he said.