“If you can’t beat them, join them”
The CBN finally joined the global and regional bandwagon of interest rate hikes, after maintaining the status quo ritual in 16 out of the last 18 meetings.
Official inflation climbing to 16.82% in April (7.82% above the CBN’s target ceiling of 9%) became the last straw that broke the camel’s back. This sharp rise in cost-push inflation compounded by a weak naira (N610/$), bleeding reserves and wilting investor confidence eventually forced the apex bank to raise the monetary policy rate (MPR) by 150 basis points to 13%p.a. – the highest level in 70 months. Interestingly, all 11 members of the committee voted for a rate increase.
We saw it coming as we predicted an increase of a 100 basis points to 12.5%p.a. in the last edition of the LBS breakfast session.
The MPC increasing interest rates at a time of positive GDP growth (Q1’2022: 3.1%) bodes well for the Nigerian economy. Since the MPR is an anchor rate and all other rates are expected to move in tandem, interest rates on fixed income securities will rise. This could keep the country’s government backed securities relatively competitive with other emerging market economies. Investors, even though cautious would be encouraged to maintain their Naira holdings and reverse capital outflows that have risen by 72% in the last two years.
The time lag between policy and transmission impact on the economy will be much shorter this time, because of the charged political environment. We believe that the CBN is now more likely to remain focused on its primary responsibility of maintaining price stability.
And we hope it lasts!
In the download and video link, Bismarck Rewane breaks down the implications of the interest rate hike on investors, businesses, consumers and overall economic performance.
Enjoy your read ….