The governor of the Central Bank of Nigeria, Yemi Cardoso has stated that the country is currently shouldering excesses of N27 trillion in ways and means, as well as N10 trillion in intervention projects, which have resulted in recent inflation.
This was disclosed by Cardoso at a CEO Forum in Lagos on Thursday, according to Nairametric.
He explained that high interest rates are caused by rising money supply and associated inflation, which drives the Monetary Policy Committee to keep rates up.
He underlined that while he is not responsible for these decisions, and that the MPC takes such decision; Nigerians must recognize that the increase in Ways and Means and intervention programs has implications.
Cardoso also stated that the MPC’s principal mandate is to minimize inflation, and that its choices are based on data trends rather than feelings.
The governor of the Central Bank does not set interest rates. The members of the monetary policy committee set the interest rates.
“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.
The CBN bos said that the high interest rate is only temporal until inflation moderates.
In addition, that the hawkish rate is based on timing, adding that the naira would have fallen against the dollar if the rate had not been so high.
Cardoso explained that as they see inflation moderates, the rate will decline.
“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.
In May, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) raised 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.
