By Chinwendu Obienyi
The Governor, Central Bank of Nigeria (CBN) Olayemi Cardoso, has indicated that the apex bank could raise interest rates in its bid to tame the rising inflation.
This, he said is in line with the bank’s decision to move to an orthodox policy.
Cardoso made this known in an interview with Financial Times recently.
The bank chief noted there was every indication that the monetary policy committee he chairs would do whatever is necessary to keep soaring inflation in check.
“They will continue to do what has to be done to ensure that inflation comes down” Cardoso said ahead of the bank’s meeting which will hold later in the month, where some analysts expect a further chunky rate hike.
Inflation in Nigeria remains stubbornly high at 33.2 per cent, the highest in three decades. Food inflation is higher still at 40 per cent, a sharp blow to the living standards of poorer citizens who devote a larger share of their income to staples, such as rice. Assaults on grain warehouses have been reported across the country.
“Let us face it, for a long period of time, the CBN did not embrace orthodox monetary policies.
“We want to go back to using an orthodox method, and it will take us to where we want to go.”, he said.
Cardoso stressed that the apex bank, had been “reoriented” to focus on “price and monetary stability”.
Recall that the MPC hiked rates by 400 and 200 basis points in February and March respectively, lifting the key lending rate to 24.75 per cent.
The moves were praised by investors for halting the slide in the naira against the US dollar.
The naira hit a record low of N1,625 on March 11 before recovering to N1,284 last month.
While the naira has since lost some of those gains, Cardoso said the situation had now stabilised.
“Investors had previously had a tendency to head for the window in response to currency fluctuations, he said.
There had been a “fundamental shift. They are getting more comfortable with the market.”, the CBN Governor said.
Markets have generally welcomed the CBN’s stance under Cardoso.
The IMF said in its latest Nigeria report last week that the central bank had unequivocally committed to price stability as its core mandate and urged the bank to keep monetary policy tight to fight inflation and build the country’s external reserves.
Yet Cardoso’s policies have not been well received as businesses have complained about the high cost of credit even as foreign portfolio investors have gradually returned to the country.
Cardoso said he hoped that high rates would not linger for too long and act as a disincentive to investment and production.
According to him, raising rates had been essential.
Cardoso said, “Hiking interest rates obviously has had a dampening effect on the foreign exchange market, so that has begun to moderate. It is not a zero-sum game. You lose on one side, you get on the other.”