MPC: Election spending driving up inflation -CBN
…Says lowering lending rate will be disastrous
Rising from the September Monetary Policy Committee (MPC) meeting, yesterday, in Abuja, the Central Bank of Nigeria (CBN) expressed worry over rising election spending, saying it is impacting negatively on inflation.
The CBN also noted that reversal of Nigeria’s inflation that trended downwards for 18 consecutive months is also responsible for holding interest rate at 14 per cent along other parameters.
Reading the communiqué to newsmen after the MPC meeting, CBN Governor Godwin Emefiele said a “decision to hold all policy parameters constant would sustain gradual improvements in output growth, maintain the current monetary policy stance and await a clearer understanding of the quantum and timing of liquidity injections into the economy before deciding on possible adjustments.”
In summary, the MPC voted to retain the MPR at 14 per cent; retain the asymmetric corridor of +200/-500 basis points around the MPR; retain the CRR at 22.5 per cent; and retain the Liquidity Ratio at 30 percent.
CBN observed that “inflation outlook suggested a mild resurgence of inflationary pressure in the economy, traceable largely to cost-push factors, election related spending, other domestic factors.”
Meanwhile, analysts at Vetiva Research said: “The decision tallies with our expectations in two ways as we had predicted a “HOLD” decision and also suggested the MPC would tilt even further towards a rate hike, which played out in the fact that some members also voted for an increase in the CRR.
Also, Lukman Otunuga, Research Analyst at FXTM said: “The Central Bank of Nigeria’s (CBN) decision to leave key rates unchanged at 14% has confirmed how external and domestic factors have placed the central bank in a difficult position.
“Higher US interests have accelerated capital outflows and led to a drop in external reserves while global trade tensions continue to weigh on sentiment.
“Rising consumer prices amid preelection spending remain another headache for the CBN, while political uncertainties add to the equation of components complicating any efforts to cut interest rates.
“With crude oil price volatility from US-China trade tensions presenting a significant threat to Nigeria’s economic recovery, the CBN could maintain the status quo for the rest of 2018,’’ he said. amongst