BREAKING: One Month To 2023 General Elections, CBN Tightens Money Supply With Interest Rate Hike To 17.5%

The Central Bank of Nigeria has surprisingly increased the benchmark interest rate to 17.5 per cent despite the deceleration of inflation in December 2022.

The Monetary Policy Committee took the decision on Tuesday at the first meeting of 2023 citing fears of further rise in inflation.

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The increase is coming exactly one month to the 2023 general elections scheduled to hold on February 24.

In the last MPR meeting in November 2022, the CBN hiked the interest rate to 16.5 per cent to curb inflation which rose to 21.09 per cent in October 2022.

But inflation is decreasing as the National Bureau of Statistics said prices decelerated to 21.34 per cent in December 2022 from the 21.47 recorded in November 2022

After the CBN increased MPR in November 2022, Maximum Lending Rate in Nigeria rose to 29.13 per cent in December from 28.14 per cent held in November.

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Prime Lending Rate also rose from 13.17 per cent in November to 13.85 per cent in December of the same year.

Godwin Emefiele, the CBN Governor said on Tuesday that the decision was taken due to progresses in inflation.

According to him, generally, the Nigerian economy will grow in 2023 but at a subdued rate.

The governor said the MPC was not convinced of the decline in inflation as reported by the CBN.

He said loosening the rate will negate the objective of damping pent-up aggregate demand which fueled inflation.

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He said the MPC considered the tighteneing of inflation to moderate prices.

The CBN however considered to holding the rate at 17.5 per cent. The MPC however retain all other parameters.

Experts had warned that increasing the MPR as it will be harmful to the economy.

Prefessor of Economics at the Ahmadu Bello University, Zaria, Peter Njiforte and a Professor of Capital Market Studies at the Nasarawa State University, Uche Uwaleke, gave the advice in an interview with THE WHISTLER.

Uwaleke, who is also the Chairman of the Chartered Institute of Bankers of Nigeria, Abuja Chapter, is of the opinion that a MPR above the 16.5 per cent will geopardise output growth.

He said, “The MPC is likely to hold all parameters when the members meet this week for two reasons:

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“One, historical evidence suggests that the MPC seldomly adjusts policy rates in January due to the need to allow the markets to stabilise in the new year.
Secondly, inflationary pressure is beginning to reduce as seen in headline inflation numbers for month of December 2022 not only in Nigeria but also in the US.

“I do not advise a further hike in MPR, as doing so beyond the current high rate of 16.5 per cent, is capable of jeopardizing economic growth”

Njiforte told THE WHISTLER that the CBN may decide to hike the rate following global trends.

He however, believes further hikes will stifle the appetite of businesses to borrow leading to slow production.

“It can be harmful and dangerous to increase the rate because if you increase the rate, you increase the cost of borrowing. When they produce at a higher cost, they sell high which results in price hike and could worsen inflation.

“But the inflation we are having is supply-side driven because of the internal issue of insecurity, insurgency and banditry have affected supply chain At the international stage, you talk about the Russai-Ukraine war coupled with the aftermath of the Covid-19 pandemic.”

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