Should the CBN increase interest rates in Nigeria?
CBN interest rates, Stears

We are entering a new economic era.

A few weeks ago, we flagged how historically high inflation in the United States and other developed countries is affecting the global economy. After the last global recession (2007 – 2009), central banks in the developed world took centre stage, pursuing a complex and innovative quantitative easing (QE) policy to reflate the global economy.

 

Key takeaways

  • We are in a new dispensation of monetary policy, and Nigeria is not exempt. After the CBN pursued a relatively low-interest rate regime for over five years, it finally increased its anchor rate (MPR) to 13% to curb inflationary pressures in the country. 

  • The change in interest rates is significant to the Nigerian economy because they determine the direction of several indicators, including savings, borrowing costs, consumer disposable income, investment inflows and GDP growth.

  • But the ability of the rate hike to reflate the economy depends on the type of inflation Nigeria is experiencing today—cost-push inflation. 

  • In the end, whether or not the rate increase ultimately curbs inflation in the short term, the CBN’s signalled intent to fight inflation is a good and legitimate sign that will shape investor behaviour and inflation expectations in the foreseeable future.
     

 

By and large, QE worked. The global economy picked up again, notwithstanding ad hoc shocks like the pandemic and Brexit, and QE never led to rapid inflation as previously feared. In fact, for nigh on a decade, the global economy enjoyed a period of ultra-low inflation, even with central banks flooding financial markets with trillions of dollars of new money.

 

This story is only available to Premium subscribers Subscribe or sign in to finish reading

Not ready to subscribe? Register to read a selection of free stories

Michael Famoroti

Michael Famoroti

Read Latest

Is Nigeria still Africa’s oil giant?

PREMIUM - 01 JUL 2022

ASUU strike: what are the alternatives for Nigerian students?

PREMIUM - 30 JUN 2022

Ekiti state elections: what can we learn about choosing a governor?

PREMIUM - 29 JUN 2022

What is causing rising diesel prices in Nigeria?

PREMIUM - 28 JUN 2022