All eyes on MPC as 297th meeting begins today

At exactly 10 AM today, the members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will gather to begin their 297th meeting. This will be the fifth MPC meeting since Olayemi Cardoso was appointed CBN Governor in September 2023.

Of course, the members will beat their chests and say, “Yes, we are working.” This is thanks to the last two consecutive months’ moderation in the inflation rate.

The reason for this celebration is that since its first meeting in February this year, where it vowed to deal a ruthless blow to inflation through tightening of the monetary policy, inflation has stubbornly refused to bow, rising consistently from 29.90 per cent in January 2024 to 34.19 per cent in June, a 4.29 per cent rise over a six-month period.

But within this period, the MPC had cumulatively hiked interest rates by approximately 800 basis points since February 2024, moving it from 18.75 per cent to 26.75 per cent to combat inflation.

Unknown to the MPC members, the more they hiked the rates, the more they inadvertently fueled inflationary pressures as the cost of funds went up, and prices of manufactured goods also responded in the same upward direction.

This situation has left many firms closing shops as they have been unable to dispose of their goods because of low patronage.

In fact, recently, the Manufacturers Association of Nigeria (MAN) reported that over 700 of its members have closed shop while the value of unsold inventories in its members’ warehouses has risen to over N350 billion as of March this year. Of course, with the sustained economic crisis occasioned by exchange rate fluctuations, this amount would have gone further up.

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This is in addition to the exit of some multinational companies including GSK, and Procter & Gamble, among others, while PZ Cussons is on the verge of pulling out.

The persistent hiking of the interest rates has been criticised by experts who insisted that increasing the rates will have minimal effect on inflation as the major drivers are more of fiscal pressures than monetary.

In fact, the CBN governor himself recognized this when he openly confessed in a television interview that the measures needed to bring down inflation were beyond him, but more in the hands of the fiscal authorities.

Indeed, the MPC members may not really have much to celebrate because the moderation in inflation is basically because of the slight drop in food prices, which is a result of the onset of the harvest season, not because of any direct monetary or fiscal policy measure.

The economy is still in a very bad shape, with the naira going down by the day in the forex market, the people are still very hungry, while the government is still borrowing and piling up debt.

As the MPC begins its meeting today, the question is, will it further hike the interest rate? Of course, in its recent report titled, “Monetary Credit Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2024-2025,” published on Tuesday last week, the CBN has asserted its plan to maintain orthodox monetary policies focused on bringing down inflation. The apex bank in the report said it shall continue to influence interest rates indirectly through the adjustment of its anchor rate, the Monetary Policy Rate (MPR).

A Professor of Capital Markets, Uche Uwaleke of Nasarawa State University, Keffi, said that the easing in the headline inflation rate is due chiefly to the moderation in food inflation occasioned by the harvest season.

According to him, “While we celebrate the slowing of inflation, the core inflation rate actually increased in the month of August.

“What all these point to is that it is time for the CBN to recognize the real pressure points and shift some attention to how the fiscal authorities can be supported to boost food production, beginning with a halt in MPR hikes this month.”

On his part, the Lead Director of the Centre for Social Justice (CSJ), Barr Eze Onyekpere, said further tightening is not the answer. “The CBN should begin lowering the monetary policy rate to ease access to credit so that the productive sector can grow and unemployment will decrease,” he said.

A Professor of Accounting and Financial Development at Lead City University, Ibadan, Professor Godwin Oyedokun, in his own response, said lowering interest rates can stimulate economic activity and increase demand for goods and services, potentially leading to higher prices.

“However, it can also help to reduce borrowing costs for businesses and consumers, which could alleviate some inflationary pressures,” he said, adding, “The CBN should carefully weigh the potential benefits and risks of lowering interest rates and consider other factors, such as the state of the economy and the outlook for inflation.

“It is important to maintain a comprehensive approach to addressing the underlying causes of inflation in Nigeria. This includes addressing structural issues, managing monetary policy effectively, and implementing policies that promote economic growth and development.”