Last year, Nigerians were rudely acquainted with the unusual combo of an economic recession and high inflation. Although recent data from the National Bureau of Statistics show that the economy is technically out of recession, inflation – and food prices, in particular – remains high. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is the body tasked with ensuring stable prices in the country, and they meet today and tomorrow to decide what to do with interest rates in the country. Here are three comments from the July meeting that indicate what the committee will do to tackle the problem of high inflation and weak economic growth:


“Stability in the foreign exchange market is critical to both economic recovery and the moderation of inflation.” – Shehu Yahaya

Nigeria’s foreign exchange (FX) crisis is over, for now, at least. Yet, the MPC knows that we are not quite out of the woods. With the United States Federal Reserve tightening monetary policy and the dollar strengthening on the back of that, reducing interest rates may prove detrimental to the naira as foreign capital exits the currency and puts depreciation pressure on the currency. Having experienced the devastating effect of dollar scarcity and naira depreciation in 2016, the FX market is probably the highest priority on the economic scorecard.  


“The compelling reason for easing is the need to support the ongoing recovery by complementing the ERGP of the Federal Government, but I would like to quickly add that in as much as this is a desirable option, it should be seen as a long-term perspective.” – Adebayo Adelabu

Nigerians rightfully lament the fact that commercial banks are strict with lending and often do so at exorbitant interest rates. Naturally, this depresses private borrowing and investment, both key for economic growth. This is the strongest case for easing monetary policy – to encourage banks to lend money at lower rates. But admirable as this goal is, it may continue to take a back seat to CBN’s efforts to tackle high inflation, its primary mandate. Thus, though the CBN Governor has reiterated his desire to move towards a single-digit interest rate (currently: 14%) at some point in his tenure, lower rates still look like a distant prospect. 


“Perhaps the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank. Monetary data shows a sharp rise in the extent of CBN financing of the government deficit.” – Adedoyin Salami

If you look closely, you would see that the CBN has mirrored the infamous QE program in the West in the way it has funded the federal deficit (by purchasing government bills). The main reason for this is that shortfalls in government revenue have required greater borrowing for its expansive fiscal policy. But such programs have the effect of lowering interest rates – precisely what the CBN has been trying not to do in the last year! This contradiction has ruffled some MPC members and could lead to a more pronounced voting divide in the coming months.  


The MPC meeting may not garner the same attention as a presidential speech, but it is of vital importance. The price you pay for goods and services, along with the rate at which you can take out a loan or the interest you earn on your investments, will vary depending on the outcome of the MPC vote. And if not at this meeting, then soon. 


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