At least three members of the Monetary Policy Committee (MPC) voted to retain the Monetary Policy Rate (MPR) at 26.25% during the MPC meeting of the Central Bank of Nigeria (CBN) on July 22-23, 2024.
According to a document containing the statements of the MPC members released by the CBN, these three votes contrasted with the majority who voted to raise the MPR by 50 basis points to 26.75%.
The MPC, which convenes regularly to assess economic conditions and make critical decisions impacting Nigeria’s monetary policy, faced a divided opinion on the necessity of further tightening measures.
While the majority opted for a moderate increase to curb inflationary pressures, three members, including Lydia Shehu Jafiya, Murtala Sabo Sagagi, and Aloysius Uche Ordu, argued that maintaining the MPR at its previous level was more appropriate given the current economic environment.
The three members, who stressed the need for a cautious approach to balancing inflation control with the need to support economic growth and stability, makeup about 27% of the 11 MPC members.
Statements of the three MPC Members
Jafiya’s Statement: Lydia Shehu Jafiya, who is the permanent secretary of the Federal Ministry of Finance, emphasized the potential negative impacts of further rate hikes on economic growth and stability.
She noted that while the MPC has aggressively tightened monetary policy since February 2024, resulting in some moderation of inflation, the effects of these policies are still unfolding.
Jafiya cautioned against additional tightening at this stage, arguing that it might stifle economic growth, particularly given the lag effect of monetary policy.
She also pointed out the recent stabilization in the foreign exchange market as a positive development that should be allowed to continue without additional rate increases.
Jafiya also proposed retaining the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45.00% and for Merchant Banks at 14.00%. She recommended adjusting the asymmetric corridor around the MPR to +500/-100 basis points to provide more flexibility in managing interest rates.
She also emphasized the need for continued fiscal and structural reforms to address underlying inflationary pressures, particularly in the food and energy sectors.
Sagagi’s Statement: Murtala Sabo Sagagi, a Professor of Management at the Dangote Business School, Bayero University, Kano, voted to retain the MPR at 26.25%, citing concerns about the potential unintended consequences of further rate hikes
He highlighted that the shift from heterodox to orthodox monetary policies was necessary due to the economic dislocations caused by the previous government’s fiscal interventions, including massive liquidity injections.
Sagagi argued that while the current tightening measures were beginning to stabilize the economy, further rate hikes could exacerbate market distortions, increase borrowing costs, and reduce credit availability to the real sector.
He emphasized the need for a balanced approach that considers the broader economic environment, including ongoing fiscal challenges and the impact of global economic conditions on Nigeria.
Sagagi voted to also retain the CRR for Deposit Money Banks at 45.00% and for Merchant Banks at 14.00%, and adjust the asymmetric corridor around the MPR to +500/-100 basis points.
Sagagi suggested reforming the Nigerian National Petroleum Corporation (NNPC) to reduce inefficiencies and enhance foreign exchange inflows, which would help stabilize the exchange rate.
He recommended that the government reconsider its decision to increase ways and means advances to promote fiscal discipline and improve investor confidence.
Sagagi also called for targeted stimulus packages to support Micro, Small, and Medium Enterprises (MSMEs) and promote economic growth without generating excess liquidity.
He advocated for the replenishment of the country’s strategic food reserves and the fast-tracking of infrastructure projects to reduce food costs.
Ordu’s Statement: Aloysius Uche Ordu, a nonresident senior fellow with the Africa Growth Initiative in the Global Economy and Development program at Brookings, voted to retain the MPR at 26.25%, expressing concerns over the potential adverse effects of further tightening on the economy, especially in light of rising unemployment, poverty, and social unrest.
He argued that additional rate hikes could exacerbate these issues, particularly given the ongoing fiscal pressures and structural challenges facing Nigeria.
Ordu stressed the importance of greater coordination between monetary and fiscal policies to address the complex economic problems the country faces, arguing that monetary policy alone cannot achieve the desired outcomes.
He further recommended maintaining the CRR at 45.00% for Deposit Money Banks and 14.00% for Merchant Banks. He also supported adjusting the asymmetric corridor around the MPR to +500/-100 basis points, similar to his colleagues.
Ordu emphasized the importance of fiscal reforms, particularly in improving tax revenue collection and reducing the overall cost of governance, to complement the CBN’s monetary policy efforts.
He advocated for measures to improve domestic oil production and reduce reliance on imported petroleum products, which would help stabilize the exchange rate and reduce inflationary pressures.
What you should know
The Central Bank of Nigeria’s (CBN) Monetary Policy Committee raised the interest rate by 50 basis points from 26.25% to 26.75%.
The Governor of the CBN, Mr. Olayemi Cardoso, announced this at the end of the apex bank’s 296th MPC meeting held in Abuja.
The MPC also pegged the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45%, while that of merchant banks was put at 14%. The liquidity ratio was pegged at 30%.
The apex bank also adjusted the asymmetric corridor around the MPR from +100 to –300 basis points around the MPR to +500 and –100 basis points around the MPR.
Speaking on the reason for the 50-basis point hike, Mr. Yemi Cardoso, Chairman of the Monetary Policy Committee (MPC), noted recent events in the economy, such as inflation and the need to stabilize the foreign exchange market, as a rationale for the increase.