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HomeBusinessNigeria's MPC members opt for moderate rate hike in support of investment

Nigeria’s MPC members opt for moderate rate hike in support of investment

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By Oludare Mayowa

 

The Central Bank of Nigeria (CBN) decided on Tuesday to increase its main lending rate by 25 basis points, a move that diverged from the analysts’ projection of a 100 basis points hike during the Monetary Policy Committee (MPC) meeting.

The MPC convened for the first time since President Bola Tinubu assumed office and Governor Godwin Emefiele was suspended from his position at the regulatory bank.

Acting CBN Governor, Folashodun Shonubi, presided over the meeting and stated that the committee opted for a moderate rate increase to anchor inflation expectations while continuing to support investment.

President Tinubu’s recent bold reforms have garnered significant attention, particularly the discontinuation of a long-standing petrol subsidy that tripled prices and the removal of foreign exchange restrictions, leading to a more than 40 percent depreciation of the naira and contributing to inflation.

These reforms have generally been well-received by investors, but analysts expressed their desire for a more aggressive approach from the central bank to combat rising prices.

Emefiele’s previous strategies, including maintaining an artificially strong naira through a much-criticized multiple exchange rate system and direct lending to businesses to stimulate growth, have been under scrutiny. Moreover, he faced firearms charges and appeared in court after his suspension from office.

Analysts surveyed by Reuters had anticipated a 100 basis point rate hike as inflation surged for the sixth consecutive month, reaching an annual rate of 22.79 percent in June.

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At the news conference to announce the MPC rate decision, Acting CBN Governor Shonubi explained that the majority of the rate-setting committee members favored a moderate rate increase to sustain efforts in controlling inflation expectations, narrowing the negative real interest rate gap, and bolstering investor confidence.

Shonubi stated, “The MPC, thus, resolved by a majority vote to raise the Monetary Policy Rate (MPR). Six (6) Members voted to raise the MPR: Four (4) Members by 25 basis points and two (2) Members by 50 basis points. Five (5) Members voted to hold the MPR constant.

“All Members voted to narrow 8 Classified as Confidential the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.”

Notably, in the last MPC meeting under Emefiele in May, the central bank had increased the policy rate by 50 basis points.

The research firm Capital Economics observed that investors were keen on seeing whether the central bank would adopt a more serious approach to combat inflation or follow President Tinubu’s preference for lower interest rates.

The firm noted, “There is clearly not the appetite for the major, and prolonged, monetary policy tightening that is needed to address high inflation.”

During his inauguration, President Tinubu expressed the need for a comprehensive review of the central bank’s policies under Emefiele, emphasizing the necessity for a thorough house-cleaning.

-With agency report

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