On July 25, 2023, the Central Bank of Nigeria (CBN) employed a new method of addressing inflation as it adjusted the asymmetry corridor by increasing the incentives of banks. This adjustment implies that banks would lend to the CBN Monetary Policy Rate (MPR) lower than 300 basis points through the means of the discount window. Prior to this period, Nigeria’s apex bank used to borrow from commercial banks at MPR lower than seven percent (700 basis points). Consequently, commercial banks would now gain 15.75 percent.
This move by the CBN is considered a strategic one as is restricts credit and cap liquidity. Although there is a likelihood that the adjustment would restrict credit flow, experts fear that it would have a negative effect on local production. President Bola Ahmed Tinubu had promised the country a low-interest rate to build a robust credit economy. The current hike contradicts the promise made by the President. However, it implies that the current CBN management could put its independence into use against many odds.
Skyrocketing cost of food is a major cause of inflation.
CBN Acting Governor, Folashodun Sonubi, speaking at a meeting organised by the Monetary Policy Committee (MPC) in Abuja, asserted that the skyrocketing cost of food is a major cause of inflation, emphasising the need to control its development. The committee has been cautious in deciding on a policy. However, the result of these arguments favour a moderate rate hike for sustenance of efforts towards anchoring expectations of the hike, bridge the gap in negative real interest rate and boost investor confidence.
Thus, the MPC resorted to increasing the monetary policy rates. Six members of the committee voted for the raise; four by 25 basis points and two by 50 basis points. Five members also voted for the consistency of the monetary policy rate. However, every member voted to reduce the asymmetric corridor from over 100 to minus 700 basis points. Therefore, the MPR vote increased the policy rate by 25 basis points — from 18.5 to 18.75 percent —symmetric corridor was also adjusted to plus 100 minus 300 basis points, while the CRR and liquidity ratio was retained at 32.5 percent and 30 percent respectively.
Blueprint to foster improved growth of the economy.
ActionAid Country Director, Ene Obi, stated that the prescription of international best practices is that the debt service-to-revenue ratio should not exceed 20 percent of export earnings or 30 percent of low-income countries’ revenue. She added that to ease the current economic and fiscal environment in Nigeria, ActionAid Nigeria in collaboration with CSJ and Nigeria Labour Congress created an economic blueprint for the current government. She explained that the blueprint is a brief on the alternative policy architectures that could foster quick recovery and improved growth of the economy.
Lead Director CSJ, Eze Onyepere, stated that the meeting was called to contribute to the agenda of the Tinubu-led administration. This is as a result of the challenging economic and social times in the country. He highlighted policies like the fuel subsidy removal, exchange rate unification and the organised introduction of palliatives to ease the impact of policies. He added that judging from the point of views of ActionAid, NLC, and CSJ, it is believed that other measures can be taken to produce significant results for Nigerians.
Reforms to aid flexibility of labour markets.
According to projections from the World Economic Outlook Growth of the International Monetary Fund, there is a need for reforms that will make labour markets flexible through encouragement of participation and reduction of job search. Therefore, there would be a facilitation of fiscal consolidation and an easier decline in inflation toward desired levels. The report further highlighted that the loosening of labour markets would include short-term training programmes for professions experiencing declines, facilitation of immigration flows, and passage of labour laws and regulations that enable work flexibility.