MPC increases interest rate to 14 per cent

FELIX OLOYEDE

Despite call by financial experts that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) should retain its key rates, it Tuesday raised interest by 200 basis points to 14 per cent from 12 per cent in the facing of rising inflation and shrinking economy.

Speaking at the end of the MPC meeting in Abuja on Tuesday, the CBN Governor, Mr Godwin Emefiele pointed that it took the decision to hike interest rate to tackle the country’s rising inflation.

“The Committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth. The MPC was further concerned that while the situation called for obvious tightening of the monetary policy stance, the technical recession confronting the economy and the prospects of negative growth to year-end needed to be factored into the policy parameters,” the apex bank boss explained.

The country’s inflation rate for June reached decade-high of 16.5 per cent, rising by 0.9 per cent from the previous month, occasioned by soaring cost of food items and energy, especially petrol.

And the nation’s Gross Domestic Product (GDP) contracted by -0.36 per cent at the end of the first quarter of the year. And the International Monetary Fund (IMF) has projected that the economy may slow down by 1.8 per cent at the end of 2016.

Emefiele expressed optimism that the increased lending rate would propel improved liquidity in the foreign-exchange market.

“Such a decision, it was argued, gives impetus to improving the liquidity of the foreign exchange market,” he said.

“Members were of the opinion that this would boost manufacturing and industrial output, thereby stimulating growth.

“The MPC noted that the negative real interest rates did not support the recent flexible foreign-exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness in bringing in new capital,” he added.