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MPC stays hawkish – Raises MPR sharply

Monetary economists are of the view that inflation is mainly a result of excessive money supply. Their prescribed antidote to spiralling inflation is an increase in interest rates to rein in money supply. The monetary policy committee of Nigeria seems to have bought into the monetarist ideology by increasing the policy rate by 150 basis points (bps), much higher than anticipated. The cumulative increase in interest rates is now 750bps in 2024.

Inflation rising at a slower pace

The CBN governor was unequivocal in his comments, saying that the MPC will remain hawkish until inflation is tamed. The expectation is based on the slowing pace of the rise in inflation, which has dropped to 0.49% in April. Also comforting is the fall in month-on-month inflation, which is now 2.29%.

Investors are skeptical

Investors and the markets have not cheered the move, as the naira has depreciated in the forex market to N1,515/$ and short-term interest rates have remained relatively flat. We expect this to change in the next few weeks, with a possible appreciation in the naira and a moderation in price inflation.

Minimum wage wahala

The major problem with inflation expectations in Nigeria is the knotty issue of minimum wage. The unions are asking for a stratospheric N500,000/month, whilst the government is offering N57,000/month. The yawning gap between these negotiating points is a recipe for nationwide protests and social disorder.

Nigeria needs a general strike as much as it needs a bullet in the head.

The full effects of the rise in the policy rate on inflation, the exchange rate, and the markets are discussed in the slides and the attached link by Mr. Bismarck Rewane, FDC Managing Director on Channels TV.

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