Interest rate hike now unavoidable in Nigeria, says FDC

With Nigeria’s inflation rate at a four-year high, an increase in interest rates is not only imminent but now inevitable, analysts at Financial Derivatives Company Limited have said.

The analysts, led by renowned economist Bismarck Rewane, noted that the Monetary Policy Committee of the Central Bank of Nigeria maintained status quo again on Tuesday in line with consensus expectations.

“This is the 21st time in the last 24 meetings that they have left parameters unchanged,” FDC tweeted on Thursday.

The MPC retained the Monetary Policy Rate at 11.5 percent; the asymmetric corridor of +100/-700 basis points around the MPR; the cash reserve ratio at 27.5 percent; and the liquidity ratio at 30 percent.

The analysts said, “Cynics fear that status quo decisions are becoming a ritual. But this time around, 33 percent of the committee members voted for a rate hike as against the previous unanimity.

“That notwithstanding, monetary conditions and monetary policy normally run in opposite directions to maintain price stability. In this case, both are moving in the same direction, and with inflation at a four-year high (17.33 percent), an increase in interest rates is not only imminent but now inevitable.”

They noted that the MPC attributed the rising inflation to output and supply shocks.

“The CBN’s view that an increase in output will help moderate inflation in the short run is widely optimistic, because of the time lag in the shift of the aggregate supply curve,” the FDC said.

The immediate antidote to price inflation must be a cocktail of measures, including an interest rate hike and reducing money supply growth, the analysts added.

Leave a Reply

Your email address will not be published. Required fields are marked *