Dear Subscriber,

It’s the last MPC meeting before Nigeria begins its walk under the new sheriff, and the committee voted to raise the benchmark interest rate (MPR) by another 50 basis points to 18.5%p.a.—the highest level in 17 years.

An incomplete counterfactual analysis!

In line with the global trend, the CBN has remained aggressive with its rate hikes to tame inflation, now at an 18-year high of 22.2%. At this meeting, the CBN urged fiscal policy authorities to address the cost-push factors fuelling the inflation fire on the premise that without the continuous rate hikes, inflation would have been 30.5% in April.

However, this analysis seems incomplete because the interest rate-inflation dynamics are assessed in isolation. The impact of higher rates on other critical macroeconomic indicators remains unexplained. What will happen to GDP growth if the monetary policy rate was unchanged at 11.5%, what will happen now at 18.5% and what will happen later at >18.5%? These questions equally apply to unemployment and the exchange rate. In the wise words of Margaret Fuller “If you have the knowledge, let others light their candles in it”.

A new administration: a new dawn? or new nothing?

Rate hikes aside, it is clear that all eyes are on the new administration and what it has to offer—a new dawn with reforms or new nothing (business as usual).

It’s difficult to predict where Nigeria will be in the coming years. Abraham Lincoln said, “The most reliable way to predict the future is to create it”. Fingers crossed that the new administration, its cabinet, and fiscal policies create a bright future for the country.

Nigeria is on edge, any misstep and all the chickens come home to roost. We only hope it never gets there.

In the download and video link, Bismarck Rewane breaks down the implications of the recent interest rate hike on investors, businesses, and consumers.

Enjoy your read…….