CBN Governor Godwin Emefiele stated the country’s inflationary pressures would have been 800 basis points higher without the bank’s contractionary monetary policy from May 2022.
Emefiele said inflation would have reached 30.48 per cent instead of April’s 22.22 per cent without the bank’s efforts.
The CBN governor clarified amid fears that the benchmark interest rate hike had not slowed inflation.
After the two-day Monetary Policy Committee (MPC) meeting in Abuja, Emefiele told reporters that headline inflation (year-on-year) climbed to 22.22 per cent in April 2023 from 22.04 per cent in March. He said this was a mild 0.18 percentage point gain.
He said the current improvement was mostly due to the food and core components, which grew moderately to 24.61 and 20.14 per cent in April 2023 from 24.45 and 19.86 per cent in March 2023.
As the MPC raised the Monetary Policy Rate (MPR), or interest rate, by 50 basis points to 18.5 per cent from 18 per cent, Emefiele made his claims.
The central bank loans to commercial banks at the MPR, which often sets the economy’s funding cost.
Emefiele said the moderate MPR hike was made to further rein in inflation, adding that lingering insecurity in major food-producing areas, high transportation costs driven by rising energy costs, middlemen in food distribution channels, and legacy infrastructural bottlenecks remain major drivers of inflationary pressure.
Emefiele said Nigerians would be suffering from inflation if the top bank had not taken tough action. He stated that the top bank’s objective of managing headline inflation through MPR hikes was a global phenomena that had begun to benefit the country.
Emefiele stated that CBN would no longer be aggressive in MPR modification, but would maintain moderate changes to preserve prior gains.
He said the MPC believed monetary interventions had helped the economy. The CBN governor claimed the recently launched Dangote Refinery may save the country 20% of its $25 billion annual import cost and attract $5 billion to $10 billion in foreign money.
With the country’s increased refining capability, the federal government might ultimately end petrol subsidy, he added.
Emefiele implored Africa’s richest man, Alhaji Aliko Dangote, to lower petrol prices for Nigerians as the CBN and federal government had funded the new refinery.
“He (Dangote) is a Nigerian and I am sure he will take measures to make fuel cheaper,” Emefiele added.
Emefiele worried about the country’s poor oil production, which was approximately 1.1 million barrels per day (mbpd). Though the oil sector provided most of the government’s revenues, it has not “contributed much into accretion of reserves in over two years.”
The CBN governor, who read the committee’s communiqué, said the meeting’s main policy decision was whether to retain or raise the policy rate to offset modest headline inflation. He said the committee considered a hold policy and restated the empirical counterfactual evidence of a “do-nothing” and believed that rate hikes have moderated inflation, although month-to-month.
The results showed that policy rate hikes had also curtailed new credit growth and lowered pent-up aggregate demand contributing to inflationary pressures.
Emefiele said MPC members agreed that the existing policy was hitting the intended parameters and producing the expected result, albeit slowly.
He said, “Reviewing the argument to further hike the policy rate in a bid to subdue aggregate demand, members noted that the current uptrend in inflationary pressure was driven by both demand and supply side issues.
“The MPC observed the continued upward risk to price development driven primarily by expectations of rising energy and food prices; unabating security challenges in food-producing areas; and persistent exchange rate pressure.
Thus, the committee believed it prudent to address demand-side challenges within its policy tools. The detrimental impact of rising inflation on real income favoured a subsequent hike (although less vigorously).
Emefiele said the MPC tightened moderately to show its belief that the existing policy stance was lowering inflation, albeit month-to-month. He said retaining the attitude would cement gains and help attempts to moderate demand-pull inflation as cost of funds climbed and discouraged aggregate demand build-up in the face of falling production growth.
He noted that MPR was raised to lower the negative real interest rate gap and mitigate its effects on domestic savings mobilisation and investor confidence.
Emefiele said the mild rate hike would reduce the present drivers of inflation by tapering economic and financial conditions. Following the preceding forward advice to tighten in the face of rising inflation, it would sweep up surplus liquidity and strengthen the bank and committee’s credibility.
Emefiele noted that the MPC was worried that inflation has not decelerated towards the bank’s long-term aim despite its restrictive monetary policy since May 2022. He said gradually rising headline inflation was the biggest threat to macroeconomic stability.
The CBN governor said, “Headline inflation, in the view of members, remained high due largely to a host of non-monetary issues outside the reach of the central bank, such as the perennial scarcity of Premium Motor Spirit (PMS) and expectations of short-term hikes in the pump price of PMS; high and rising price of various energy sources; and a host of headwinds confronting the food supply chain.”
In order to better respond to legacy and upcoming shocks, the MPC advised the fiscal authority to examine other ways to expand the fiscal safety net.
Emefiele said non-oil revenue streams including tax bracket increase would reduce fiscal deficit and public debt to improve fiscal flexibility.
Emefiele also lamented the country’s low oil production of 1.1 million barrels per day (mbpd). He said the oil sector still provided most of the government’s earnings, but it had not “contributed much into accretion of reserves in over two years”.
The CBN governor said it was startling that production was still at 1.1mbdp, calling it a “dangerously low level of production and export for Nigeria given that what OPEC quota gives us is 1.8 million barrels per day”.
He said every well-meaning Nigerian must demand answers from NNPC since the development portends significant danger for the country, especially amid growing clamour for subsidy withdrawal.
Emefiele said, “We are facing these kinds of shortfalls and we know that NNPC is facing its own various challenges, but I think it’s time for all of us to fold up our sleeves and get on board with NNPC and say, what is causing all these.
“We need to be able to round up production effectively to 1.8 mbpd, plus condensates, maybe above 2.3mbpd, and if we do not do this, I think we are really looking at real problems ahead of us, particularly at a time when there is a concerted determination to exit the subsidy regime.
“We must act now.”