CBN raises MPR to 18%, cites Buhari’s plan to remove petrol subsidy

… subsidy removal will definitely push up inflation further – Kale, former DG NBS

Oredola Adeola

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has voted at its February 2023 meeting to raise the monetary policy rate (MPR) by 50 basis points from 17.5% to 18%, in preparation for the total removal of petrol subsidy by the outgoing administration, before May 2023.

Godwin Emefiele, Governor of CBN, made this announcement on Tuesday at the end of the second MPC meeting for the year on Tuesday.

Zainab Ahmed, Minister of finance, budget and national planning, last week during a courtesy visit to the headquarters of Voice of Nigeria in Abuja, disclosed that the controversial petrol subsidy will be removed before the end of outgoing President Muhammadu Buhari’s tenure on May 29, 2023.

According to him, the monetary policy tightening was as a result of the planned petrol subsidy removal which is due to happen before the end of the outgoing President Mohammadu Buhari’s administration in May.

Emefiele said, “Whether we like it or not subsidy removal will likely happen before the end of this administration in May 2023.

“To reduce the gap in the negative real rates, we will continue to tighten but more moderately.

Dr. Yemi Kale, Partner, Chief Economist & Head Research KPMG Nigeria, in his reaction to the CBN’s decision, revealed that the monetary authority has maintained a hawkish stance by raising the MPR to 18%, based on his prediction.

He said, “This will probably continue if inflation stays higher and until its effect is reflected on the Gross Domestic Product (GDP).

“The impending subsidy removal, cited by the CBN, is an interesting tactic by the current administration before it leaves. This decision is definitely needed for policy backup.

“Subsidy removal will definitely push up inflation further, so CBN’s anticipatory move is spot on if it does happen.

The former Statistician-General/CEO Nigeria Bureau of Statistic (NBS) however noted that the decision of the CBN to push MPR rates up will not matter much, simply because of cost-push inflation.

“But at what point does a higher rate of risk, slower growth and higher non-performing loans (NPLs)?” Dr. Kale noted.