The CBN had started its monetary policy tightening cycle in May 2022 with its benchmark interest rate rising from 11.5 per cent to 18.5 per cent in May this year.
The International Monetary Fund (IMF) Tuesday called on the Central Bank of Nigeria (CBN) to continue with its interest rate hike regime for a more stable and sustained recovery.
The call came amidst the high inflation rate in the country.
IMF Divisional Chief, Daniel Leigh, who spoke at the launch of the World Economic Outlook report in Marrakesh, Morocco, described the recent petrol subsidy removal and the unification of the official exchange rate as a pathway towards stronger and inclusive growth.
According to Daily Trust, he said, “President Tinubu has moved quickly with important reforms including ending the fuel subsidies and unifying the official exchange rates. We welcome these initial bold reforms because we see them as paving the way towards stronger and inclusive growth.”
The CBN had started its monetary policy tightening cycle in May 2022 with its benchmark interest rate rising from 11.5 per cent to 18.5 per cent in May this year.
A greater interest rate implies that the lender will compensate the borrower with a high rate relative to the amount borrowed. A reduced interest rate indicates a lower cost for repaying borrowed funds, but a higher rate is the opposite, economists say.
Since the interest rate was raised in May 2022, inflation has accelerated from 17.71 per cent to an 18-year high of 25.8 per cent, according to the National Bureau of Statistics (NBS) data.
The implication is that the interest rate hikes have not tamed the inflationary pressure on the economy.
The August inflation figure rose for an eighth straight month from July’s 24.08 per cent, according to the NBS, compounding the cost of living crisis. The last time Nigerians experienced this level of inflation was in August 2005, official data shows.
However, according to the IMF regional economic outlook also released yesterday, Abebe Aemro Selassie, Director of the African Department at the IMF, said: “To ensure a more stable and sustained recovery, it is important that country authorities in Africa guard against any premature monetary policy easing and remain committed to their fiscal consolidation plans.
“Monetary policy efforts should remain tightly focused on price stability. This is not only a priority to address the continent’s cost-of-living crisis but would also strengthen the credibility of central banks and overall macroeconomic resilience.
“In economies with still elevated and persistent inflation, further monetary tightening remains appropriate until there are clear signs that inflation is on track to meet the authorities’ inflation goals. This is critical to safeguard credibility and keep long-term inflation expectations anchored.”
He argued that the monetary policy stance should be data-dependent, saying “Once conditions allow, central banks consider gradually easing to a more neutral stance and should be on the lookout to ensure that domestic demand does not threaten to reignite price pressure.
“For countries with more flexible arrangements, currencies should be allowed to adjust as much as possible, together with tight monetary policies while being mindful of financial stability risk.
“In this regard, resisting depreciation has sometimes led some countries with limited reserves to resort to distortive foreign exchange rationing or price controls.”
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, while speaking on inclusiveness in decision making, said Nigeria needed greater representation in the governance of the World Bank and the IMF where decisions on economy are made.
He stated, “On one hand, as far as the international, multilateral development banks and institutions are concerned, we, along with other Africans, are calling for a bigger voice, a third seat in the governance of the World Bank and IMF, and for Sub-Saharan Africa, and at the end of the day, for Nigeria.”
“So, we’re saying we want greater representation at the table in which some of these decisions are taken and of course coming back home, it’s all about what is being done and there are major steps being taken to reform the tax environment.”