IMF Urges Nigeria to Keep Tight Monetary Policy, Curb Inflation

LAGOS (Capital Markets in Africa) – The Central Bank of Nigeria should maintain its tight monetary-policy stance and consider raising interest rates to help anchor price expectations, the International Monetary Fund said.

Increasing the monetary policy rate from 14 percent to exceed price growth, which stood at 15.1 percent in January, “would more transparently reflect CBN intentions, help anchor inflation expectations, and signal forward-looking policy,” the Washington-based lender said in a report release Wednesday after an Article IV consultation.

Governor Godwin Emefiele said in January the central bank may reduce its benchmark rate before July if inflation drops closer to single digits. That could help boost an economy that contracted in 2016 and is forecast to expand 2.1 percent this year. While price growth has slowed from an almost 12-year high in January 2017, it’s been outside the target range of 6 percent to 9 percent since the middle of 2015.

The IMF’s directors “commended the central bank’s tightening bias in 2017, which should continue until inflation is within the single-digit target range,” it said.

Policy formulation in Nigeria has been complicated by the Senate’s refusal to approve President Muhammadu Buhari’s nominees to the Monetary Policy Committee, which means the panel lacked a quorum to hold a meeting to formally set rates in January. It’s not yet clear if it will be able to meet as scheduled this month.

The central bank should reinforce price stability as its key mandate and “avoid confusing signals implied by the pursuit of multiple objectives”, the IMF said. The confirmation of the newly appointed directors of the central bank’s board and members of the MPC would also be important signals for its independence, the IMF said.

Source: Bloomberg Business News