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Philip Ikeazor, the Deputy Governor of the Financial System Stability Directorate at the Central Bank of Nigeria (CBN), cautioned against consecutive aggressive interest rate cuts, stating that they would exacerbate economic challenges. His remarks came during the recent 151st Monetary Policy Committee (MPC) Meeting held on March 25 – 26, 2024.
The MPC had previously increased the Monetary Policy Rate (MPR) by 200 basis points to 24.75% from 22.75% in response to inflationary pressures and the need to stabilize exchange rates.
Ikeazor highlighted concerns about the oil and manufacturing sectors’ vulnerability to rate hikes, suggesting that further tightening could deepen economic contraction. He pointed to indicators such as the projected decline in the Purchasing Managers’ Index (PMI) in the industrial sector due to rising input costs and low capacity utilization.
Aloysius Uche Ordu, a senior fellow at the Brookings Institution, echoed Ikeazor’s sentiments, emphasizing that interest rate hikes could dampen consumer spending and business investments. He underscored the importance of addressing supply-chain issues and cost-push factors to mitigate prolonged high inflation, which could adversely affect Nigerians and economic functioning.
Olayemi Cardoso, the CBN Governor and MPC Chairman, added to the discussion by highlighting emerging inflationary pressures, including “seller inflation” driven by commodity market dynamics and government purchases for distribution as palliatives. He stressed the need for fiscal measures to complement monetary policy in achieving price stability.
Ikeazor expanded on Cardoso’s theory of “seller’s inflation,” explaining how it influences headline inflation by guiding domestic market prices based on exchange rate dynamics. He emphasized the importance of aligning fiscal and monetary policies to sustain economic growth while maintaining price stability.
In conclusion, MPC members reiterated their confidence in ongoing economic reforms and emphasized the necessity of coordinated fiscal and monetary policies to achieve non-inflationary growth and macroeconomic stability.
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