We’ll keep interest rates high to tame inflation, says CBN Gov

In a decisive move to tackle Nigeria’s persistently high inflation, Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has indicated that the apex bank will maintain elevated interest rates until inflation recedes, employing orthodox monetary policies.

“Inflation in Nigeria remains stubbornly high at 33.2 percent, the highest in three decades, while food inflation is higher still at 40 percent,” Cardoso remarked in an interview with the Financial Times, emphasizing the urgency of the situation.

Cardoso stressed that the Monetary Policy Committee (MPC), under his leadership, is committed to taking necessary measures to curb soaring inflation.

He asserted, “There is every indication that the MPC would do whatever is necessary. They will continue to do what has to be done to ensure that inflation comes down.”

This approach marks a departure from the previous administration led by Godwin Emefiele, during which Nigeria grappled with an inflation crisis exacerbated by excessive money printing to finance government deficits beyond legal limits.

Acknowledging the need for a shift in monetary policy strategy, Cardoso stated, “For a long period, the CBN did not embrace orthodox monetary policies. We want to go back to using an orthodox method, and it will take us to where we want to go. The apex bank has been reoriented to focus on price and monetary stability.”

Under Cardoso’s leadership, the monetary policy rate saw significant hikes, with a cumulative increase of 600 basis points in February and March, elevating the key lending rate to 24.75 percent.

Regarding the volatility of the naira against the US dollar, Cardoso expressed optimism, noting a stabilization trend. He observed a shift in investor sentiment, indicating increased confidence in the market’s stability.

While Cardoso’s approach has garnered support from international investors, domestic stakeholders express concerns about the adverse effects of high-interest rates on businesses, particularly regarding credit accessibility. Despite foreign portfolio investors gradually returning to Nigeria, local businesses stress the need for a balanced approach that addresses inflation while fostering economic growth.

Razia Khan, Chief Economist at Standard Chartered Bank, lauded Nigeria’s return to orthodox policies, likening the approach to measures endorsed by the International Monetary Fund (IMF). However, some analysts caution that structural issues, such as insecurity affecting food production, contribute significantly to inflationary pressures.

David Adonri, Vice Chairman of Highcap Securities, warned against the potential negative repercussions of prolonged high-interest rates on the economy, advocating for coordinated monetary and fiscal policies to address supply-side constraints and mitigate inflationary risks.

Responding to concerns, Cardoso expressed hope that high-interest rates would not persist indefinitely, highlighting their effectiveness in stabilizing the foreign exchange market. He underscored the necessity of raising rates to curb inflation, attributing the inflationary spikes to external factors beyond the CBN’s direct control, particularly high food prices.

Victor Chiazor, Head of Research at FSL Securities, emphasized the importance of maintaining cautious monetary policies until a substantial slowdown in inflation is observed, cautioning against premature policy relaxation amid elevated inflation and negative real returns.

As Nigeria grapples with inflationary pressures and economic challenges, Cardoso’s steadfast commitment to orthodox policies underscores the CBN’s determination to restore price and monetary stability, albeit with a keen awareness of the broader economic implications and the imperative for a balanced approach.

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