Taming inflation or sustaining growth: Why CBN held rate at 11.5%

At the 135th Monetary Policy Committee (MPC) meeting between Monday and Tuesday in Abuja, the dilemma which confronted members and shaped the decision was whether to tame rising inflation or encourage sustenance of the fragile growth arising from recent recovery from economic recession.

According to a communique issued at the end of the meeting, however, six of the nine members in attendance eventually voted to sustain growth and even pump more money into stimulus packages while the remaining three voted to rather confront rising inflation.

In the communique signed by Governor of Central Bank of Nigeria (CBN) Mr Godwin Emefiele, MPC reiterated its concerns on the activities of persons and groups causing security challenges in the food-producing areas of the country, as this has contributed to the major uptick in food prices across the country. 

Emefiele explained that the meeting was “faced with contradictions. The tight monetary policy makes credit difficult and so people will not be able to easily access capital to stimulate output growth. As rising inflation confronts you, you want to take steps to reduce the rate of inflation. But if you do, then growth is affected. 

“The country just managed to crawl out of recession. Should monetary policy be tightened in a way that will be a disincentive to activities that will stimulate output growth and therefore reverse us back into recession or should we continue to stimulate the economic growth?

“MPC deliberated on these and decided that we should continue to do those things that we did and more intensely those things that took us out of recession: intervene in agriculture; ICT, services, the creative industry and health.

“We should be looking at creating more loans for our targeted households, MSMEs that were adversely affected by the COVID-19 pandemic, knowing fully well that when we support these households and MSMEs, it will stimulate consumption that will lead ultimately to greater aggregate demand that will lead to consolidating of overall GDP growth.”

He said this would continue until the economy was stabilised enough and then necessary steps for reducing inflation would be put in place.

MPC then called for collaborative and coordinated efforts by all the relevant agencies and stakeholders towards addressing the prevailing insecurity issues and social challenges. 

MPC also called on the government to explore the option of effective partnership with the private sector to improve funding sources necessary to address the huge infrastructural financing deficit. 

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