How CBN’s rate hike aligns with four countries’ that held MPC meeting in May

RIDING on the belief that Central Banks are mostly aligned, the recent 150 basis points Monetary Policy Rate (MPR) hike of the Central Bank of Nigeria (CBN) after 70 months, has conformed with Central Banks of four countries that have held Monetary Policy Committee (MPC) meetings in May 2022.

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday, May 24, 2022 voted unanimously to raise the benchmark interest rate to 13 per cent after two years of expansionary monetary policy.

Available records show that the United States (US) also raised the interest rate to 1.0 per cent with inflation down to 8.3 per cent. The United Kingdom (UK) raised its rate to 1.0 with inflation at 9.0 per cent, India raised to 4.4 per cent with inflation at 7.79 per cent, China raised to 3.7 per cent with inflation at 2.1 per cent and Indonesia 3.5 per cent with inflation at 3.47 per cent.

Consequently, the major Central Banks such as the U.S. Fed, the Bank of England, European Central Bank and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rates which may ultimately impact capital flows away from emerging market economies.

According to the Lagos-based Financial Derivatives Company (FDC) Limited, 36 countries raised interest rates in the penultimate month with only Russia reducing interest rates after it had increased rates to 12 per cent per annum (p.a) earlier to protect its currency.

The firm noted that inflation has consistently surpassed the CBN’s target range of six to nine per cent, explaining that inflation targeting is a Central Bank’s strategy of adjusting monetary policy to achieve a specific inflation rate

According to a recent analysis by the Financial Times of London, Central Banks are raising rates rapidly in the most widespread tightening of monetary policy for more than two decades laying bare the reversal of their previous historically loose stance.

Policymakers around the world, it stated, have announced more than 60 increases in current key interest rates in the past three months, according to an FT analysis of central banking data — the largest number since at least the start of 2000.

The figures illustrate the sudden and geographically widespread reversal of the very accommodative monetary policies adopted since the global financial crisis in 2008 and boosted further during the coronavirus pandemic.

Interest rates hovered near unprecedented lows in most advanced economies for the past decade and in some cases went negative. The Financial Times analysts noted that the sudden shift in policy comes as inflation has reached multi-decade highs in many countries, fuelled by soaring energy and food costs since Russia invaded Ukraine in February.

 

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