THE Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has stated that the central bank will maintain high interest rates until inflation decreases through orthodox policies.
In an interview with the Financial Times, Cardoso stated that the Monetary Policy Committee (MPC), which he leads, will do everything required to contain rising inflation.
This comes as Nigeria’s inflation rate continues at 33.2%, the highest in three decades, and food inflation is much worse at 40%.
“There is every indication that the MPC will do whatever is necessary. They will continue to do what is necessary to bring inflation down.
He said, “Let’s face it: for a long time, the CBN did not adopt traditional monetary policy. We want to return to a conventional method, which will get us where we want to go.
“The central bank has been reoriented to focus on price and monetary stability,” Cardoso explained.
It should be noted that the monetary policy rate was raised by 400 and 200 basis points in February and March, respectively, bringing the benchmark lending rate to 24.75 percent.
Cardoso stated that the naira’s changing value versus the US dollar has finally settled.
“Previously, investors tended to flee the market in response to currency swings. But suddenly there had been a profound change.
“They’re becoming more comfortable with the market,” he said.
Chief Economist of Standard Chartered Bank, Razia Khan, responded to Cardoso’s stance, saying:“The return to orthodoxy has been very much endorsed by investors. While Nigeria is not seeking an IMF programme it is implementing the kind of policies that would be endorsed by the IMF.”
Dumebi Oluwole, Senior Economist at data provider Stears, stated that: “The central bank is on the mark with what needs to be done. But we have to remember that Nigeria’s inflation is a lot more structural. Issues like insecurity are affecting our ability to produce food and that is inducing food inflation.”
In response, David Adonri, Vice Chairman of Highcap Securities, stated: “High-interest rate is a bad omen for the economy. It escalates the cost of production and the cost of consumer credit. If supply-side measures are not concomitantly run, it can cause a vicious cycle of galloping inflation. “Consequently, monetary and fiscal policies should work together to start addressing the supply gap that will rein in inflation and reduce the interest rate.”
