Olayemi Cardoso, Governor of the Central Bank of Nigeria, has stressed the need to maintain higher interest rates to address the persistent inflation issues plaguing the Nigerian economy.
The governor made this comment in his country This was stated in the recently issued “personal statement” of Monetary Policy Committee members at the Monetary Policy Committee meeting held from May 20 to 21, 2024.
Personal data helps show the decision-making process to committee members responsible for monetary policy in the country. It also highlights their voting patterns.
Cardoso stated that tight monetary policy combined with high interest rates was at their disposal to solve the challenges of high inflation.
Cardoso also stated that although inflation accelerated sharply at the beginning of 2024, there has been a noticeable slowdown in the past three months.
Despite this, he noted that year-on-year inflation still witnessed a slight increase in April.
He outlined several factors contributing to inflationary pressures, including potential upward revisions to the minimum wage, adjustments in electricity tariffs, higher fuel prices, lower agricultural production due to insecurity, increased consumption during holiday seasons, and pass-through effects of the exchange rate. Consumption.
He stressed that these factors will continue to be closely monitored to prevent a decline in the progress achieved so far in the field of slowing inflation.
Cordo’s justification for rising interest rates
Cardoso explained that the Monetary Policy Committee faced two basic policy options: Either maintain current rates or tighten them further to maintain the inflation trend.
He acknowledged that there are valid arguments for maintaining interest rates, such as reducing borrowing costs for the government and the private sector, alleviating difficult economic conditions, and reversing the positive results of previous rounds of tightening.
However, Cardozo also provided compelling reasons for further tightening.
Because inflation will rise if it “settles” for higher interest rates
“There is no evidence that the downward trend in inflation on a monthly basis is sustainable and will eventually manifest itself in a downward trend in headline inflation. What is more, given the various upside risks to price development from global and domestic economies, there is sufficient reason to be concerned about the rise.” Inflation will continue if we stop at this critical point.
Because higher interest rates will help attract foreign investors
“Furthermore, the tightening will help maintain the current momentum of capital flows into the economy and provide needed support to the currency in the near term. It is important to highlight that continued high interest rates in advanced economies present a real dilemma for emerging market economies seeking to attract inflows.” capital, and we must ensure that interest rate spreads remain sufficiently competitive by achieving positive real rates in the short term.”
Because high interest rates are the only main tool they have
“We must also not lose sight of the fact that inflation is the main problem. A tighter monetary policy stance with accompanying higher interest rates are the policy tools at our disposal to solve the problem from a monetary angle, even as we acknowledge that there are structural issues that must also be addressed alongside the various stakeholders.” interest.
Ultimately, Cardoso He expressed his conviction to agree with other Monetary Policy Committee members in voting for further tightening.
His personal statement stated the following: “After careful consideration, I was convinced to join the other members of the Monetary Policy Committee in voting in favor of further tightening of the policy stance. Therefore, I voted in favor of increasing the key interest rate by 150 basis points from 24.75% to 26.25%.
Cardoso’s call for higher interest rates reflects a firm approach to combating inflation and ensuring economic stability, but recognizes the monetary and structural challenges that need to be addressed in Nigeria’s economic landscape.
After its meeting, the Monetary Policy Committee raised the benchmark interest rate by 150 basis points to 26.25% from 24.75%. It also kept the cash reserve ratio (CRR) of deposit money banks (DMBs) at 45% and set the asymmetric corridor around the MPR at +100 and -300 basis points. The bank also set the banks’ liquidity ratio at 30%.