Tosin Osunkoya, the Co-Managing Partner and CEO of Comercio Partners Asset Management, emphasized the need for the Central Bank of Nigeria to strike a delicate balance between controlling price stability, inflation, and exchange rates while adopting a pragmatic approach to effectively address these challenges.
Osunkoya made these remarks in response to the outcomes of the July 2023 MPC meeting by the Central Bank of Nigeria, as stated in a report by Nairametrics.
He also pointed out that the 25 basis point increase in the Monetary Policy Rate (MPR) to 18.75% reflects the committee’s concern about the implications of cost-push inflation. This type of inflation arises when the cost of capital, a crucial factor in production, rises due to an increase in the policy rate.
Given the complexities of simultaneously managing price stability, inflation, and exchange rates, Osunkoya emphasized the necessity for the Central Bank to implement policies that encourage sustainable economic growth. However, he acknowledged that achieving all three objectives at once might be challenging in the current economic climate, underscoring the importance of adopting a realistic and multifaceted approach to tackle these difficulties effectively.
Regarding the rate hikes, Osunkoya commended the Central Bank’s efforts to curb inflationary pressures caused by rising manufacturing costs through interest rate adjustments. He also highlighted the significance of narrowing the asymmetric corridor around the MPR to bring more stability to the broader interest rate framework and prevent excessive interest rate fluctuations.
Osunkoya further emphasized the importance of addressing forex supply issues contributing to exchange rate volatility, urging the need for reforms to enhance the efficiency of the FX market and attract foreign investment.
In light of the complex economic issues and evolving regulatory landscape in Nigeria, Osunkoya advised investors to exercise caution and explore diverse investment options. He stressed that while the CBN’s decision to raise interest rates demonstrates their commitment to combat inflation and preserve price stability, a comprehensive approach involving structural reforms, fiscal policies, exchange rate management, and measures to foster long-term economic growth is essential.
During the MPC meeting, the benchmark interest rate (MPR) was raised by 25 basis points to 18.75%, marking the highest rate in 22 years. This was the first MPC meeting chaired by the new acting CBN governor, Folashodun Shonubi, following the suspension of Godwin Emefiele.
Other key decisions from the MPC meeting included the narrowing of the asymmetric corridor around the MPR and the retention of the Cash Reserve Ratio (CRR) at 32.5% and the Liquidity Ratio at 30%.
Despite multiple interest rate hikes in the last 14 months, Nigeria’s headline inflation reached 22.79% in June 2023, the highest rate since September 2005.