In line with consensus expectations, the MPC maintained status quo again. This is the 21st time in the last 24 meetings that they have left parameters unchanged. Cynics fear that status quo decisions are becoming a ritual. But this time around, 33% of the committee members voted for a rate hike as against the previous unanimity.
That notwithstanding, monetary conditions and monetary policy normally run in opposite directions to maintain price stability. In this case, both are moving in the same direction, and with inflation at a four-year high (17.33%), an increase in interest rates is not only imminent but now inevitable.
The MPC attributed the rising inflation to output and supply shocks. The CBN's view that an increase in output will help moderate inflation in the short run is widely optimistic, because of the time lag in the shift of the aggregate supply curve. The immediate antidote to price inflation must be a cocktail of measures including an interest rate hike and reducing money supply growth.
In the slides below, Bismarck Rewane carries out an insightful analysis on the recently concluded MPC meeting.