Be Cautious On Monetary Policy Tightening As Businesses Yet To Recover From Previous Hikes, CPPE Tells CBN

Ahead of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting later this month, the Centre for the Promotion of Public Enterprise (CPPE) has issued a plea for a cautious approach towards monetary policy tightening.

The CPPE emphasized that businesses are still reeling from the impact of recent aggressive rate hikes.

Dr. Muda Yusuf, the Director-General of CPPE, stressed the need for a temporary halt in monetary policy adjustments to allow fiscal measures to address supply-side issues influencing inflation. He stated, “Businesses are yet to recover from the shocks of the recent bullish rate hikes. The monetary instruments should be put on pause while fiscal policy tools address supply-side factors in the inflation dynamics.”

While acknowledging a slight deceleration in inflation, particularly in headline and food prices for April, the CPPE underscored that key drivers of price increases, such as food costs, transportation expenses, insecurity in farming communities, and structural challenges, remain unresolved.

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Dr. Yusuf reiterated a previous call for the Nigerian Customs Service (NCS) to establish a quarterly exchange rate band of between N800 and N1000 for import duties assessment, highlighting the adverse impact of exchange rate fluctuations on inflation. He emphasized, “The exchange rate benchmark for import duty computation continues to be a major concern, with significant implications for inflation. We urge the CBN to peg the rate at between N800 and N1000 per dollar, to mitigate the pass-through effect of heightened trade costs on inflation.”

Additionally, the CPPE commended the commencement of refining activities by the Dangote refinery, anticipating a mitigating effect on inflation in the short term.

Nigeria’s inflation rate surged to 33.69% in April, primarily fueled by escalating food and transport prices, marking one of the highest inflation rates in nearly three decades. The CBN has responded to this inflationary pressure with successive interest rate hikes, raising rates by 600 basis points from 18.75% to 24.75% in the past two MPC meetings held in February and March.

The upcoming MPC meeting scheduled for May 20, 2024, will determine the CBN’s course of action regarding the Monetary Policy Rate (MPR) and other policy tools. Meanwhile, the NCS continues to adjust import duty exchange rates in response to fluctuations in the foreign exchange market, a practice criticized by the business community. The CPPE’s earlier recommendation for a quarterly exchange rate regime remains unaddressed by the Customs Service.