International Monetary Fund (IMF) has advised the Central bank of Nigeria to increase the interest rate further to reduce inflation ahead of the 288th Monetary Policy Committee (MPC) meeting.
This was disclosed in the 2022 Article IV Consultation concluding statement after an official staff visit to Nigeria.
The Washington-based lenders said decisive and effective monetary policy tightening is a priority to prevent risks of de-anchoring inflation expectations.
Raise interest rate
The IMF said, “The mission welcomed measures taken by the Central Bank of Nigeria (CBN) to tighten liquidity and curb inflationary pressures through increasing the monetary policy rate (MPR) by a cumulative 400 basis points and raising the cash reserve ratio (CRR). However, overall conditions remain accommodative— the MPR is below inflation, and financing provided to the budget and the CBN’s directed lending schemes continue to drive substantial monetary expansion.”
The IMF acknowledged Nigeria’s weak interest rate transmission but recommended a hawkish monetary policy stance.
“Given the multiplicity of monetary policy tools, market segmentation, and weak interest rate transmission, the mission recommended the following measures to effectively tighten the monetary policy stance: (i) fully sterilize the impact of CBN’s financing of fiscal deficits on money supply; (ii) stand ready to further increase the MPR to send a tightening signal; and (iii) continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy.”
Limits credit to the Government
The Washington-based lenders advised the apex bank to limit the financing to the government.
Nariametrics has reported that the Central Bank of Nigeria has given out a total sum almost N20 trillion in loans to the Federal Government under its Ways and Means provision as included in the CBN Act.
IMF said, “it would be important to limit reliance on CBN overdrafts for fiscal financing to the statutory limit of 5 percent of previous year’s revenues by pursuing fiscal consolidation, better budgetary planning and resorting to supplementary budgets in case of financing shortfalls.”
Focus on inflation
The International Monetary Fund (IMF) has stated the that the Central Bank of Nigeria (CBN) modernize the 2007 CBN ACT and make price stability the primary objective.
Nigeria’s inflation rate jumped to a 17-year high of 21.09% in October 2022, while food inflation rate has risen by 23.72% on a year-on-year basis.
IMF said, “The mission also reiterated its previous recommendations to modernize the 2007 CBN ACT to establish price stability as its primary objective. It also recommended to enhance transparency through timely publishing of audited financial statements.”
