Nigerian Economy: Why MPC increases interest rates –CBN

*The Central Bank of Nigeria restates the idea of increasing the Monetary Policy Rate by 150 basis points from 14 percent to 15.5 percent is to make cost of funds expensive to drive down inflation in the West African country’s economy

Gbenga Kayode | ConsumerConnect

The Central Bank of Nigeria (CBN) has restated that the Monetary Policy Committee’s (MPC) decision to raise the Monetary Policy Rate (MPR) is to control rising inflation in the economy.

ConsumerConnect learnt Hassan Mahmoud, Director of Monetary Policy Department at CBN, said Wednesday,  September 28, 2022, at a post-MPC briefing tagged: “Unveiling Facts behind the Figures’’.

It is recalled the MPC, in its 287th meeting Tuesday, had increased the MPR by 150 basis points, from 14 percent to 15.5 percent.

The MPR is the baseline interest rate in an economy on which other interest rates within that economy are built on.

Mr. Godwin Emefiele, Governor of CBN, had said that the decision was informed by persistent rise in inflation rate and fragile economic growth.

The MPC got to a point where stringent measures had to be taken to control inflation, said Mahmud.

The CBN Director of Monetary Policy Department also noted that the Committee took cognisance of global as well as local economic issues in arriving at its policy decisions.

He further stated: “We raised the MPR because it is necessary to do so.

“The quantity of money in the system was too much for the economy to absorb.”

According to him, monetary policy tools are meant to deal with short-term risks.

Mahmud also clarified the idea was to make cost of funds expensive to drive down inflation.

He stated that stimuluses that governments across the world provided for their citizens during COVID-19 increased the ability of people to spend, thereby, creating challenges with global supply.

“A lot of households and small businesses were injected with stimuluses; the U.S did two trillion dollars, Nigeria did about five trillion Naira, these increased the ability of people to spend.

“But the supply side could not meet up with the demand because that volume of injection was far more than the regular intake for those economies, this made prices to go up,” stated he.

Mahmud as well blamed the Russian-Ukraine war, and the resurgence of COVID-19 in China as responsible for rise in the global inflationary trend.

He added: “That region accounts for more than 50 percent of global commodity supply and 38 percent of global oil and gas supply.

“The war resulted in some shortages which made prices to go up.”

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