- ...Move will further squeeze liquidity from banking system - Experts
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the interest rate by 50 basis points from 26.25 per cent to 26.75 per cent, the fourth consecutive increase in interest rate by the CBN in 2024.
The Governor of CBN, Mr Olayemi Cardoso, announced this at the end of the apex bank's 296th MPC meeting held in Abuja.
The MPC also pegged the Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) at 45 per cent, while that of merchant banks was put at 14 per cent. The liquidity ratio was pegged at 30 per cent.
The apex bank also adjusted the asymmetric corridor around the MPR from +100 to -300 basis points around the MPR to +500 and -100 basis points around the MPR.
The recent hike totals a cumulative 800 basis points hike in MPR since Mr Cardoso took over the reins of the apex bank. This has seen the benchmark interest rate rise from 18.75 per cent to 26.75 per cent.
The apex bank, in February, increased the MPR by 400 basis points. This was followed by another 200 basis points and then 150 basis points before the latest increase.
Cardoso, who is the Chairman of the MPC, explained that recent events in the economy such as inflation and the need to stabilise the foreign exchange market were the reasons for the increase.
He further referenced recent policies of the federal government to import-specific staple foods such as rice, maize and wheat to help stem the rising food inflation, but warned that the timeline should be followed in order not to stifle the gains made in local food production.
Cardoso praised the convergence between the official exchange rate and that of the parallel market as part of efforts to reduce arbitrage in that sector.
Dormant accounts are more susceptible to fraud, CBN wants to safe-keep the funds - Cardoso
While clarifying the new guidelines to banks on dormant accounts, Cardoso stated that dormant accounts in Nigeria were more susceptible to fraudsters and that the reason for the CBN's latest policy was for safe keeping of the funds.
He said, "The policy and the directive is meant to ensure that all those monies come to the central bank for safe keeping and it is at zero cost to the beneficiaries. All that will happen is that the central bank will manage the money within our possession and when the rightful owner surfaces, the money is returned plus whatever income is accrued to you."
...Says middlemen contributing to Nigeria's food inflation
The governor also accused middlemen who finance farmers of contributing to Nigeria's food inflation.
He said, "The increasing activities of middlemen, who often finance smallholder farmers, obligate, hoard and move farm produce across the border to neighbouring countries.
"The committee suggested they need to put in check such activities in order to address the food supply deficit in the Nigerian market to moderate food prices. The MPC, therefore, resolved to sustain collaboration with the fiscal authority to ensure that inflationary pressure is subdued."
...Nigeria suffering from consequence of not diversifying economy
Reacting to the concerns that the monetary policies have failed to curtail inflation, the CBN governor said, "A monolithic economy has its own risks. And part of those risks, of course, is that if anything happens to your dependency, then the whole system gets shaken. And I guess in many respects; that is part of what we are going through. Part of it is, not all, certainly part of it because let's not forget that there are global headwinds as well. And that going forward, we must ensure that we are able to craft policies that are sustainable and will bring a sustainable method of development for our people."
He added, "No matter the policies crafted, if the institutions are not there to support those policies, then you sub-optimise and again from the CBN's perspective, that is very important. Now, these things have to go hand in hand."
Move will further squeeze liquidity from the banking system - Experts
A Professor of Finance and Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, said, "Having done 750 basis points between February and May, this year, I had predicted they would do a minimum of 50bps or a max of 100bps in July.
"I am glad to note that they chose the floor which is a sign that a complete halt is most likely in their next scheduled meeting in September.
"But the adjustment to the asymmetric corridor around the MPR is a major source of concern for me."
He said the MPC communique did not provide any explanation for increasing the SLR (Statutory Liquidity Ratio) from +100 to +500 and the SDR (Special Drawing Right) from -300 to -100.
He argued that by implication, with an MPR of 26.75 per cent, banks would now get loans from the CBN at 31.75 per cent while they would be remunerated for their excess deposits at 25.75 per cent.
He said this would further squeeze liquidity from the banking system and jerk up the cost of credit with adverse consequences on output and the equities market.
He further said, "The MPC communique should have made it clear why it was better to mask the tightening in the asymmetric corridor than reveal it in the MPR.
"May I observe that unlike previous MPC communiques, recent ones are silent regarding how the members voted. This information is useful at this stage even before their personal statements are published.
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"I submit that as far as taming the current elevated inflation in Nigeria is concerned in view of its major non-monetary drivers, the fiscal side holds the ace."
An economist and Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said, "Expectedly, the CBN hiked interest rate by 50 basis points. This appears to be a moderation in its aggressive tightening stance. It is perhaps a reflection of some responsiveness to the clamour by stakeholders in the real economy for the apex bank to affect a deceleration in its rate hikes.
"Although my preference was for a pause on the rate increases because of the enormity of the headwinds that businesses are grappling with. But the marginal increase marks a softening of the tightening stance. It is tolerable.
"I believe we should now accelerate the implementation of the fiscal policy measures to tackle inflation. Already, the economic stabilisation plan contains a number of laudable fiscal policy measures that could reduce production costs in the economy.
"It is also important and urgent for the government to adopt and quickly implement the recommendation of the presidential committee on fiscal and tax reforms on the customs duty exchange rate which proposed N800/dollar. The adoption of this recommendation would have a considerable impact on the cost of goods and services in the country."
