Article Summary

  • Nigeria’s headline inflation would have reached 30.43% in April 2023 without the Central Bank’s pegging of the primary interest rate at 18%.
  • The Central Bank attributes the high inflation to non-monetary factors such as the scarcity and exploitation of petroleum products and rising energy prices.
  • The Monetary Policy Committee (MPC) believes that its aggressive interest rate hikes have moderated the rise in inflation by about 800 basis points over the past year.

The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has said that Nigeria’s headline inflation would have hit 30.43% in April 2023 if the primary interest rate had not been pegged at 18%. 

He stated this while emphasising that the MPC’s hawkish inflation policy was having a positive effect on the fight against inflation, albeit moderately. 

The actual reason inflation is high

According to him, headline inflation remained high due likely to a host of non-monetary factors outside the reach of the CBN, examples of which include perennial scarcity of PMS and exploitation of short-term high price of PMS, high and rising prices of many energy sources and a host of headwinds confronting the food supply chain.

He further explained that in coming up with its 18.5% primary rate, the MPC was concerned that despite its aggressive stance adopted since its May 2022 meeting, inflation had decelerated towards the banks’ long-run objective. 

He added that the committee noted that the continued rise in headline inflation, although moderate, remained the biggest challenge confronting macroeconomic stability in Nigeria. He said:

  • “In the circumstance, the committee enjoins the fiscal authorities to explore other avenues to expand the safety net in an urgent need to improve its ability to respond to legacy and emerging shocks. Non-oil revenues such as the expansion of the tax bracket will enable the reduction of fiscal deficit and public debt to improve the fiscal space. 
  • “Confronted by these challenges, the committee tasked its Research and Monetary Policy Department in the course of this meeting, to evaluate a piece of counter-factual evidence from available data using empirical analysis. The result of the analysis revealed that following each monetary policy rate hike, the rise in inflation moderated to what it could have been if the MPC did not aggressively raise rates at all. 
  • “In fact, empirical evidence provided showed that whereas inflation in April 2023 stood at 22.27%, the counter-factual evidence suggests that it could have risen to 30.48% in April 2023 had the MPC not taken any action to raise the policy rate as it did since May last year. 
  • Indeed, collectively, the MPC rate hike has moderated the rise in inflation by about 800 basis points over the last year.” 

A dilemma for the apex bank

He added that the committee was also concerned that ample growth on a year-on-year basis dropped to 2.31% during the first quarter of 2023, compared to 3.11% during the first quarter of 2022. 

He stressed that the dilemma of the meeting, therefore, centred around whether to hold or loosen to focus on growth or tighten further, to tame the rise in inflation, but noted that the members were unanimous that even though rising inflation would eventually hurt growth, it is important to continue to focus on monetary and price stability, although in a less aggressive manner. 

In case you missed it

As we earlier reported, the CBN MPC eventually voted to increase its benchmark interest rate (MPR) for the third time this year by 50 basis points to 18.5%. 

This latest increase marked the 7th consecutive rate hike by the apex bank in its fight against Nigeria’s marauding inflation.