By Adedapo Adesanya
The International Monetary Fund (IMF), via its mission to Nigeria, has called on the Central Bank of Nigeria (CBN) to increase the monetary policy rate (MPR) from the current 15.5 per cent to fight the rising inflation.
It called on the nation’s monetary policy authority to “stand ready to further increase the MPR to send a tightening signal” at the Monetary Policy Committee (MPC) meeting, which kicked off on Monday, November 21, with the outcome expected to be given on Tuesday, November 22, 2022, by the Governor of the CBN, Mr Godwin Emefiele.
Nigeria’s inflation topped a fresh 17-year high of 21.09 per cent in October on the back of disruption in the supply of food, an increase in the cost of importation due to the persistent currency depreciation leading to a rise in the cost of production.
The mission welcomed measures taken by CBN to tighten liquidity and curb inflationary pressures by increasing the MPR by a cumulative 400 basis points and raising the cash reserve ratio (CRR) at its September 2022 meeting.
It, however, said overall conditions remain accommodative since the MPR is below inflation. It also lauded the financing provided to the budget and the CBN’s directed lending schemes continue to drive strong monetary expansion.
The global lender said a decisive and effective monetary policy tightening is a priority to prevent risks of de-anchoring of inflation expectations.
It noted that given the multiplicity of monetary policy tools, market segmentation and weak interest rate transmission, some measures need to be taken to tighten the monetary policy stance effectively.
It also called on the Nigerian government to “fully sterilize the impact of CBN’s financing of fiscal deficits on the money supply.”
The IMF tasked Nigeria to continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic, to support the economy.
The mission welcomed progress in the securitization of the CBN’s existing stock of overdrafts and recommended speedy finalization.
“Going forward, it would be important to limit reliance on CBN overdrafts for fiscal financing to the statutory limit of 5 per cent of the previous year’s revenues by pursuing fiscal consolidation, better budgetary planning and resorting to supplementary budgets in case of financing shortfalls,” the statement recommended.
The mission also reiterated its previous recommendations to modernize the 2007 CBN ACT to establish price stability as its primary objective. It also recommended enhancing transparency through the timely publishing of audited financial statements.
