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CBN MPC member seeks aggressive hike in interest rate to curb inflation

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A member of Nigeria’s Monetary Policy Committee (MPC) wants the Central Bank of Nigeria (CBN) to aggressively hike interest rates to fight inflation in Africa’s largest economy.

The CBN raised its benchmark interest rate for the first time in almost six years in May, by 150 basis points to 13 per cent. Inflation hit an 11-month high of 17.7 per cent in May, up from 16.8 per cent in April.

“I am not sure that a one-off increase in the policy rate would do the magic of reining in inflation,” Festus Adenikinju, a member of the central bank’s monetary policy committee, said.

In his statement at the end of the May 23-24 MPC meeting published by the bank on Wednesday night, Adenikinju said that it is likely that inflation maintains its current growth trajectory in the near term.

Adenikinju, who voted for the May rate hike, said the bank should be “overly aggressive” in addressing inflation, which he called “a major threat to economic growth and employment generation.”

“I am not sure that a one-off increase in the policy rate would do the magic of reining in inflation. However, we must start, and we must be overly aggressive in bringing it down.

“This is in addition to other administrative measures that the Bank management may deem fit to control liquidity,” He wrote in his statement at the meeting.

READ ALSO: Fitch says interest rate hikes unlikely to slow Nigerian inflation

He said the Nigerian economy is projected to grow by about 3.24 per cent in 2022, noting that there are downside risks to this projection including the security challenges, global oil price developments, COVID 19 in China, and uncertainty around elections in 2023, among others.

Adenikinju said the rising inflation is also a downside risk to economic growth.

He said the current projection is that inflation will maintain the current growth trajectory in the near term. Inflation and positive inflationary outlook are a major threat to economic growth and employment generation.

“I am worried that Nigeria is not able to benefit maximally from the current upsides in the global oil market. We were not only unable to ramp up our production levels to meet the OPEC quota, but no accretion to foreign reserves is also taking place, and government deficit and public debts are going north at a time we should be writing down our debt profiles and even building up a buffer for the inevitable raining days ahead.

“The current food price shock is also a call for the country to reduce external dependence and invest more on agricultural output and its value chain.

“The country has sufficient land resources and favourable weather conditions to be self-sufficient in many of the food products we import. The CBN is already doing a lot of interventions in this area. The deposit money banks and the fiscal must complement the efforts of the Bank. I am concerned about government budgetary performance,” he said.

According to him, the rising share of governments in total credit to the economy by the banking system suggests the crowding-out effects of private sector borrowings. Governments should divert to non-debt means of funding its activities.

The government, he said must grow its revenue base, reduce waivers to economic agents, plug leakages and wastes, and address the wasteful petrol subsidy system, adding that the huge energy deficit must be urgently addressed.

The bank’s next monetary policy meeting is in July.

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