Nigeria’s Central Bank (CBN) has opted to stay hawkish as it confronts domestic inflation by keeping the monetary policy rate (MPR) high.
The regulator in a move that has been seen as mimicking the United States of America’s Fed adoption of a sustained tight monetary policy stance increased the previous 17.5% MPR by 50bp to 18%.
The rate rise has attracted concerns from economists who believe that the CBN could be taking care of a headache with a bullet rather than a tablet.
The analysts believe that the CBN’s reference to the inflation rate being higher than the rate of the MPR was a policy misconception. They insist that as the rate at which banks borrow from the CBN, the MPR was a wrong measure to judge the real domestic rate of returns.
The real rate of return on market instruments involves longer-term considerations that relate the two to ten-year treasury bill rates to the annual inflation rate and not to the short-term overnight rate at which the CBN provides commercial banks with temporary liquidity cover.
The CBN Governor’s reference to real rates while speaking on the domestic monetary policy rate left a few analysts quizzical.