The Chief Executive of the Center for the Promotion of Private Enterprise (CPPE) Dr Muda Yusuf signaled that the recent hike in rate by the CBN MPC would hurt investors in the real economy, citing that the main drivers of inflation so far are the rising energy costs and depreciating exchange rates.
He disclosed this in a statement to Nairametrics after the CBN Acting Governor, Folashodun Shonubi announced the MPR rate increase by 25 basis points on Tuesday.
He added that the increase is unlikely to have any significant impact on inflation.
MPR
Mr. Yusuf disclosed that the increased rate hike did not come as a surprise, but urged that worries persist on the decision, he said:
- “The hike in Monetary Policy Rate [MPR] did not come as a surprise because of the surging inflation and the current pressure on the exchange rate.
- “These are macroeconomic economic conditions that the CBN would not ignore. There are concerns about real interest rate which is currently in negative territory. There are also worries about the signaling effect of the MPC decision.
No inflation impact
He added that the hike would contribute to problems already facing investors in the real economy, as the hike would not impose any proper impact on the rising inflation, he said:
- “But the hike in rate would hurt investors in the real economy as they are already grappling with numerous headwinds.
- “These include the spiking energy cost, depreciating exchange rate, increasing cost of logistics, weak purchasing power, and spiraling inflation.
- “The main drivers of inflation at this time are the twin problems of rising energy cost and the depreciating exchange rate.
He added that the increase in MPR is unlikely to have any significant impact on inflation, citing The transmission mechanism of monetary policy instruments on inflation is extremely weak because of peculiarities of the Nigerian economy.
What you should know
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) increased the benchmark interest rate (MPR) by 25 basis points to 18.75% from its initial 18.5%, representing the highest interest rate in 22 years.
The announcement was made by the acting CBN governor, Folashodun Shonubi during a press briefing, after the two-day MPC meeting on Tuesday, 25th July 2023. This is the first MPC meeting chaired by the new acting CBN governor, following the suspension of Godwin Emefiele..
This is also the first MPC meeting under President Bola Tinubu’s administration.
Highlights of the MPC decision
- The MPR was increased by 25 basis points to 18.75%
- The asymmetric corridor was narrowed to +100/-300 basis points around the MPR from +100/-700 basis points
- CRR was retained at 32.5%
- The liquidity Ratio was also kept at 30%