The governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has said the country is currently shouldering the excesses of N27 trillion ways and means as well as N10 trillion in intervention programmes which has led to the recent inflation.
Cardoso, speaking at a CEO Forum in Lagos on Thursday, explained that high interest rates are driven by increased money supply and subsequent inflation, which forces the Monetary Policy Committee (MPC) to maintain elevated rates.
He emphasized that while he is not responsible for these decisions pointing out that the MPC makes such choices Nigerians must understand that the surge in Ways and Means and intervention programs has consequences.
Cardoso further clarified that the MPC’s primary mandate is to reduce inflation, and its decisions are based on data trends rather than emotions.
“Interest rate is not set by the governor of the Central Bank. The interest rate is set by the members of the monetary policy committee.
“Thankfully, we have a monetary policy committee compromised of independent-minded people who are solely driven by data.
“The MPC has made it very clear that for them the major issue is taming inflation and has also made it very clear that they will do whatever is necessary to tame inflation.
“Sadly, we have a situation where a lot of money supply went into the system. We all saw ways and means soared to N27 trillion. We saw interventions of N10.5 trillion. It has its consequences. In large respect, that is what we are paying for now,” Cardoso said.
High Interest Rate Temporal
Speaking further, the head of the CBN noted that the high interest rate is only temporal until inflation moderates.
He added that the hawkish rate is based on timing, emphasizing that without such a high rate the naira would have tumbled against the dollar.
Cardoso explained that as they see inflation moderates, the rate will decline.
On whether the high rate is working, the governor said month-to-month inflation has declined by 50%, adding that it is projected to further reduce shortly.
“The MPC is not oblivious to the fact that ultimately, we do want growth. If these hikes were not done at the time they were done, the naira to the dollar was almost tipping over. This helps to stabilize it. Secondly, it is a timing issue. It’s not something that will remain with us forever.
“Fiscal issues being moderated and the ability to suck up all the excess liquidity in the system and be able to balance things out over a period of time. That’s the important thing for the MPC as far as I can see.
“Between February and May of this year, the month-on-month rate of inflation has gone down 50%. I sense that this is not something that is a one-size-fits-all. I think in a not too distant future, the interest rate will come down,” he added.
What you should know
- In May, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) increased the benchmark interest rate by 150 basis points to 26.25% from 24.75%.
- Furthermore, the bank retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and put the Asymmetric corridor around the MPR at +100 and –300 basis points.
- The bank further set the liquidity ratio of banks at 30%.
- This is the third increase in interest rates since the beginning of the year, 2024.
- The Governor of the apex bank attributed the hike in rates to continued efforts towards moderating inflation which reached 33.95% in May 2024 according to the National Bureau of Statistics (NBS).