The International Monetary Fund (IMF) has recommended that the Central Bank of Nigeria (CBN) should raise interest rates in the next Monetary Policy Committee (MPC) meeting to address the country’s high inflation rate.
The call was made by Julie Kozack, the Director of the Communications Department at the IMF, during a press conference.
Citing Nigeria’s 27 percent inflation rate, Kozack pointed out that the CBN’s policy of mopping up excess liquidity from the system has contributed to the nation’s rising inflation.
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“The Central bank, under its new leadership, has started to withdraw excess liquidity that was in the system and contributing to high inflation. The next Monetary Policy Committee meeting should further raise the policy interest rate. So, the Central bank is taking action to try to address the high inflation problem,” she said.
She highlighted the importance of addressing the high inflation rate, and the IMF’s call aligns with its previous recommendations during the Article IV Consultation held in February 2023.
Kozack emphasized the need for Nigeria to raise revenue, considering its low revenue-to-GDP ratio of 9%, which she deemed insufficient to support robust social safety nets and development spending.
“The next Monetary Policy Committee meeting should further raise the policy interest rate. So, the Central bank is taking action to try to address the high inflation problem. As we mentioned in our Article IV Consultation, which was held in February of 2023, raising revenue from the very current low revenue-to-GDP ratio of 9 percent is essential to create fiscal space for social and development spending.
“Nine percent of GDP is a very low revenue to GDP ratio, and it is really not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs,” she said
She acknowledged that the 2024 budget aims to reduce the fiscal deficit while creating space for priority spending on social and development initiatives.
However, since its Monetary Policy Meeting in July, when it raised the Monetary Policy Rate (MPR), which measures interest rate, from 18.5 percent to 18.75 percent, the central bank has failed to hold another MPC meeting. In September, the CBN, under acting governor, Folashodun Shonubi, postponed the 293rd MPC meeting scheduled for Monday and Tuesday, September 25 and 26, 2023.
Although the postponement was attributed to the non-confirmation of the newly appointed governor Yemi Cardoso and deputy governors of the bank by the Senate, months have gone by since then with the central bank not attempting to hold the MPC.
The newly appointed governor, Cardoso, said the MPC meeting of the apex bank has not been effective, adding that his focus is to make it effective.
“For quite some time, there has been a dislocation of our monetary transmission mechanisms rendering the MPC meetings largely ineffective,” he said.
“For the avoidance of doubt, the Central Bank of Nigeria Act 2007 requires that the meeting of the Monetary Policy Committee of the Bank be held at least four times a year, and the Bank has satisfied this requirement for 2023. Our focus has been on ensuring these meetings are useful and effective.”
“Our focus is on ensuring that these meetings are useful and effective,” he stressed.
Against this backdrop, the IMF call for the increase of interest may likely not be heeded, even though Nigeria’s inflation rate has been consistently rising. The inflation rate surged to 27.33% in October, marking an increase from the previous month’s rate of 26.72%, according to the latest report published by the Nigerian Bureau of Statistics (NBS).