IMF backs CBN’s decision on interest rate hike
The International Monetary Fund (IMF) has endorsed the Central Bank of Nigeria’s decision to increase the interest rate to 22.75 per cent.
The Monetary Policy Committee of the CBN at its last meeting raised the policy rate by 400 basis points.
The committee also voted to keep the Cash Reserve Ratio (CRR) at 45 per cent while the Liquidity Ratio was retained at 30 per cent.
Nigeria’s high inflation rate, hitting 29.9 per cent in January 2024, intensified pressure on the naira. This surge, driven by rising food prices, reflects a notable increase from 28.92 per cent in December 2023.
The MPC’s move has elicited varied responses, with some policy analysts expressing concerns.
The IMF gave the endorsement following the conclusion of its 2024 Article IV Mission to Nigeria.
According to a statement Monday by the Fund, the IMF team, led by Axel Schimmelpfennig, mission chief for Nigeria, conducted discussions with Nigerian authorities in Lagos and Abuja from February 12 to 23.
During the visit, the team engaged with key figures including Wale Edun, the Minister of Finance and Coordinating Minister for the Economy; Olayemi Cardoso, Governor of the Central Bank of Nigeria; as well as senior government and central bank officials. Meetings were also held with representatives from the Ministry of Agriculture, the Ministry of the Environment, and various stakeholders from sub-national entities, the private sector, and civil society.
“The team welcomed the Monetary Policy Committee (MPC)’s decision to further tighten monetary policy. The MPC increased the policy rate by 400 basis points to 22.75 per cent for a total tightening of 1,025 basis points since May 2022. This decision should help contain inflation, which reached 29.9 per cent year-on-year in January 2024, and pressures on the naira,” Mr Schimmelpfennig said.
Nigeria’s economy has faced various challenges in recent times, including high inflation, currency depreciation, and fiscal pressures. The policy rate hike is expected to have ripple effects across the economy, impacting borrowing costs, investment decisions, and overall economic activity.
Challenging outlook
Mr Schimmelpfennig also highlighted the challenges facing Nigeria’s economic outlook, noting that economic growth had strengthened in the fourth quarter of 2023, with GDP growth reaching 2.8 per cent, albeit falling slightly short of population growth dynamics.
The IMF projects a GDP growth rate of 3.2 per cent for Nigeria in 2024, driven by improved oil production and expectations of a better harvest in the latter part of the year.
However, Mr Schimmelpfennig pointed out that high inflation, naira weakness, and policy tightening are expected to pose significant headwinds.
“With about 8 per cent of Nigerians deemed food insecure, addressing rising food insecurity is the immediate policy priority. In this regard, staff welcomed the authorities’ approval of an effective and well-targeted social protection system. The team also welcomed the government’s release of grains, seeds, and fertilizers, as well as Nigeria’s introduction of dry-season farming.
“Recent improvements in revenue collection and oil production are encouraging. Nigeria’s low revenue mobilisation constrains the government’s ability to respond to shocks and promote long-term development. Non-oil revenue collection improved by 0.8 per cent of GDP in 2023, helped by naira depreciation. Oil production reached 1.65 million barrels per day in January as a result of enhanced security. The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 per cent of GDP in 2024.
“The recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected,” he said.
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The International Monetary Fund (IMF) has endorsed the Central Bank of Nigeria’s decision to increase the interest rate to 22.75 per cent.
The Monetary Policy Committee of the CBN at its last meeting raised the policy rate by 400 basis points.
The committee also voted to keep the Cash Reserve Ratio (CRR) at 45 per cent while the Liquidity Ratio was retained at 30 per cent.
Nigeria’s high inflation rate, hitting 29.9 per cent in January 2024, intensified pressure on the naira. This surge, driven by rising food prices, reflects a notable increase from 28.92 per cent in December 2023.
The MPC’s move has elicited varied responses, with some policy analysts expressing concerns.
The IMF gave the endorsement following the conclusion of its 2024 Article IV Mission to Nigeria.
According to a statement Monday by the Fund, the IMF team, led by Axel Schimmelpfennig, mission chief for Nigeria, conducted discussions with Nigerian authorities in Lagos and Abuja from February 12 to 23.
During the visit, the team engaged with key figures including Wale Edun, the Minister of Finance and Coordinating Minister for the Economy; Olayemi Cardoso, Governor of the Central Bank of Nigeria; as well as senior government and central bank officials. Meetings were also held with representatives from the Ministry of Agriculture, the Ministry of the Environment, and various stakeholders from sub-national entities, the private sector, and civil society.
“The team welcomed the Monetary Policy Committee (MPC)’s decision to further tighten monetary policy. The MPC increased the policy rate by 400 basis points to 22.75 per cent for a total tightening of 1,025 basis points since May 2022. This decision should help contain inflation, which reached 29.9 per cent year-on-year in January 2024, and pressures on the naira,” Mr Schimmelpfennig said.
Nigeria’s economy has faced various challenges in recent times, including high inflation, currency depreciation, and fiscal pressures. The policy rate hike is expected to have ripple effects across the economy, impacting borrowing costs, investment decisions, and overall economic activity.
Challenging outlook
Mr Schimmelpfennig also highlighted the challenges facing Nigeria’s economic outlook, noting that economic growth had strengthened in the fourth quarter of 2023, with GDP growth reaching 2.8 per cent, albeit falling slightly short of population growth dynamics.
The IMF projects a GDP growth rate of 3.2 per cent for Nigeria in 2024, driven by improved oil production and expectations of a better harvest in the latter part of the year.
However, Mr Schimmelpfennig pointed out that high inflation, naira weakness, and policy tightening are expected to pose significant headwinds.
“With about 8 per cent of Nigerians deemed food insecure, addressing rising food insecurity is the immediate policy priority. In this regard, staff welcomed the authorities’ approval of an effective and well-targeted social protection system. The team also welcomed the government’s release of grains, seeds, and fertilizers, as well as Nigeria’s introduction of dry-season farming.
“Recent improvements in revenue collection and oil production are encouraging. Nigeria’s low revenue mobilisation constrains the government’s ability to respond to shocks and promote long-term development. Non-oil revenue collection improved by 0.8 per cent of GDP in 2023, helped by naira depreciation. Oil production reached 1.65 million barrels per day in January as a result of enhanced security. The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 per cent of GDP in 2024.
“The recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected,” he said.
Support PREMIUM TIMES’ journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
Donate
TEXT AD: Call Willie – +2348098788999
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