Nigeria’s economy will not be hit as the United States and other advanced economies aggressively move to normalise policy rates on the back of thickening inflationary pressures, Godwin Emefiele, Central Bank of Nigeria’s (CBN) governor, said on Tuesday.
Emefiele’s assurance came amid fears of possible capital reversal as the US Fed and other advanced economies signal plans to begin to tighten monetary policy in order to contain soaring inflation.
He was addressing a press conference to announce the outcomes of the two-day meeting of the CBN Monetary Policy Committee ((MPC), which held all policy parameters constant, citing the need to wait out the impact of ongoing measures to tame inflation and drive growth.
The MPC left the Monetary Policy Rate (MPR) steady at 11.5%, Cash Reserve Ratio (CRR) at 27.4%, Liquidity Ratio (LR) at 30%, and Asymmetric corridor around the MPR at +100/-700 basis points.
Speaking to the concerns that the planned rate hike by the US Fed and advanced economies could result in capital outflows from emerging and developing economies, which in turn could exacerbate foreign exchange pressures, he said there was nothing to worry about as the said capital did not flow into Nigeria in the first place.
“The funds that will be leaving as a result of policy normalisation from the advanced economies did not come into Nigeria in the first place, and as such, there is nothing to withdraw from here because we are not part of that game.
“I want to assure that it won’t affect us, so there is nothing to worry about,” Emefiele said.
He also explained that those countries raising rates were rather concerned about rising inflation and capital outflows from their economies.
“In any case, what caused policy normalisation in the advanced economies is because of rising inflation and has attained unprecedented levels in these economies,” he said.
The US inflation spikes have prompted the Federal Reserve to pick up the pace in normalising its pandemic-era monetary policy.
The US inflation reached 7.08%, the highest since 1982. The UK inflation reached 4.2%, which is the highest since 2010. In the EU area inflation attained 5.5%, the worst since the European Central Bank and the euro were created.
But Emefiele explained that with these unprecedented levels of inflation, “these economies did not have a choice but to think of how to aggressively rein in inflation because of the liquidity suffice they see in the environment and the need to contain prices to a level that is safe.
“Most of those governments are even facing the threat of losing their next election on the back of rising prices and inflation.”
However for Nigeria, the major challenge is not just inflation but also growth, he noted and explained why the apex bank had refused to move rates for some time now.
He doused the possibility of raising rates for now since what was driving food prices was mainly structural, assuring that they were trying to tackle the logistics issues, and not being unmindful of the hoarders.
“This is a policy we have been adopting in the last two years and if we feel that this policy is working well, there is no reason for MPC to begin to contemplate a policy of tightening since we are already doing that through our CRR discretion.
“That is the reason we think that we would continue to do what we are doing now because it is giving us the result that we expect in terms of growth recovery, inflation moderation for eight consecutive months till December uptick.
“So, monetary policy thinks that what happened in December is temporary, transitory, though there’s the need to monitor especially as both the food and core inflation trended up in December 2021.
“We feel that inflation uptick will be reversed because the harvest for 2021 was very good.
“We are not in that game, that is why we are not following them in that direction. We want to remain where we are right now, hold, watch because we believe what we are doing is working for our economy.”
Razia Khan, managing director, chief economist, Africa, and the Middle East, Global Research at Standard Chartered Bank, said no monetary policy changes and not even a hint of FX policy change, despite the delayed fuel subsidy withdrawal.
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“Clearly, there is little appetite to allow local currency market rates to get to levels that would be of interest to offshore portfolio investors, against a backdrop where the Fed is tightening. It is too high a price for the CBN to want to pay,” she said.
Bismark Rewane, CEO, Financial Derivatives Company Limited, said, “I am of the view that you are likely to see inflation increase. By the time you have February or March numbers, there will not be a choice at that time and the US and UK will signal by increasing interest rates. We would have to definitely normalise our monetary policy.”
On the part of analysts at Comercio Partners Limited, they said, “We welcomed another largely anticipated outcome from the just concluded MPC meeting, as the policy priority remains growth consolidation, irrespective of inflationary pressures in the economy.
“Similarly, the move towards monetary policy normalisation in the global economy has had little effect on the committee, given the fragility of domestic economic growth and the inability of available policy levers in taming the supply-side inflation type blighting the economy.
“We share a similar view that the uptrend in inflation witnessed in December 2021 would not persist in the first quarter of the year, and the growth momentum should be sustained on the back of a weak base period. Hence, a hold approach will be the near-term strategy for the apex bank, pending when major economies like the US start to hike interest rates in the second quarter, and local inflation resumes its uptrend as the impact of the high base period fades.”
