Rising Inflation: Will the MPC raise the Policy Rate or Support Economic Growth

This brief examines global and domestic developments in Nigeria as well as the effect of slowdown in economic growth of key oil consuming nations on the Nigerian economy.

Publication Date: December, 2011

Volume Number: 1 Issue 4

Document Size: 3 pages

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) holds its first meeting for 2012 on January 30th, taking into consideration global and domestic developments since its last meeting in November 2011. While events in the global economy will remain in the front burner due to the effects of projected slowdown in economic growth of OECD countries and other key oil consuming nations on the Nigerian economy, the key domestic issue that will influence the interest rate decision is the partial reduction in petrol subsidy by the federal government. Therefore, without taking eyes off the effects of global events on the domestic economy, the MPC will again be faced with the dilemma of either raising the Monetary Policy Rate (MPR) in order to prevent the economy from overheating due to the inflationary effects of petrol price increase, or better still maintain a neutral policy stance. In December 2011, headline and core inflation rates moderated from 10.5% and 11.5% to 10.3% and 10.8% respectively, while food inflation rose from 9.6% to 11%. However, the MPC will be concerned with the trend of core inflation since for the whole of 2011, core inflation which discounts seasonality, averaged 11.7% compared to headline and food inflation average rates of 10.8% and 10.3%.