MPC wants to ensure interest rate stays above inflation
Deputy governor sees scope to raise rates before February vote
The Nigerian central bank is “in the mood” for tightening and will increase its main interest rate if inflation doesn’t slow, Deputy Governor Joseph Nnanna said.
“Every member of the Monetary Policy Committee is certain that the monetary policy rate should increase if inflationary pressures build up,” Nnanna said Monday, speaking on the sidelines of a conference in the resort city of Sharm El-Sheikh in Egypt. “Our intention is to ensure that the interest rate is kept positive in real terms.”
The MPC has held its key rate at a record 14 percent since 2016 in a bid to prop up the naira and tame inflation after it spiked to double digits in the same year. While price growth has since slowed to below the monetary policy rate, the panel has shifted from some members voting for rate cuts in January to three of ten members favoring higher rates at the July meeting.
Governor Godwin Emefiele flagged the delayed passage of the record 2018 budget of 9.12 trillion naira ($25 billion) and pre-election spending as possible price risks in the second half of the year. Nigerians will go to the polls in February for a vote in which President Muhammadu Buhari will seek a another term.
“These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation,” Nnanna said. “There’s a scope to raise rates before the elections in February.”
Nnanna voted for a 50 basis-point increase in May. While the individual member statements from the July MPC meeting haven’t been released, one person voted for 25 basis-point hike and two wanted to raise the rate by 50 basis points.
See how the Nigerian MPC’s vote has changed since January
“The central bank is still in the mood for tightening,” he said. “How fast are we going to tighten is what members haven’t agreed upon.”
While policy tightening by the U.S. Federal Reserve is a concern, investors still see Nigeria as an attractive market thanks to the stable naira and the yield curve on fixed-income instruments that’s higher than in the U.S. or Europe, Nnanna said.
“I am not worried about reversal of capital flows,” he said. “If any investor wants to exit the market, we shall meet them at the door and write a check and give them their money.”
— With assistance by David Malingha Doya