The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), yesterday raised its interest rate to 26.75 per cent, a 50 basis point increase aimed at combating soaring inflation, which reached 34.19 per cent for core inflation and 40.87 per cent for food inflation in June.
This decision, announced by CBN Governor Olayemi Cardoso, marks the fourth rate hike since his appointment in September 2023 and reflects ongoing economic pressures despite previous increases not significantly cooling inflation.
This is as experts have commended the CBN for a moderate interest rate hike.
Chief Executive OfficerCentre for the Promotion of Private Enterprise (CPPE) Dr Muda Yusuf, who described the 50 basis points increase as tolerable, called for urgent implementation of fiscal policies to stabilise the economy.
Governor, CBN, Yemi Cardoso, who doubles as the Chairman of the MPC, made this known while presenting the communique from the 296th meeting of the committee.
Cardoso also announced that the MPC adjusted the asymmetric corridor around the MPR to +500/-100 from +100/-300 basis points; retained the Cash Reserve Ratio (CRR) of commercial banks at 45 per cent.
The committee also retained the CRR and Liquidity Ratio of merchant banks at 14 per cent and 30 per cent, respectively.
Cardoso said that the meeting, which had 11 members of the MPC present, reviewed recent economic and financial developments, and assessed risks to the outlook.
According to him, the committee was mindful of the effect of rising prices on households and businesses, and also expressed its resolve to take necessary measures to bring inflation under control.
"It re-emphasised its commitment to the CBN's price stability mandate and remained optimistic that despite the June uptick in headline inflation, prices are expected to moderate in the near term.
"This is hinged on monetary policy gaining further traction, in addition to recent measures by the fiscal authority to address food inflation.
"In its consideration, the committee noted the persistence of food inflation, which continues to undermine price stability.
"It was observed that while monetary policy has been moderating aggregate demand, rising food and energy costs continue to exert upward pressure on price development," he said.
The governor said that the prevailing insecurity in food producing areas and high cost of transportation of farm produce were also contributing to this trend.
According to the CBN governor, members were, therefore, not oblivious to the urgent benefit of addressing these challenges as it will offer a sustainable solution to the persistent pressure on food prices.
Cardoso said that the MPC also had in consideration the increasing activities of middlemen who often finance smallholder farmers, aggregate, hoard, and move farm produce across the border to neighbouring countries.
He said that the committee suggested the need to put in check such activities 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.
"In addition, the committee expressed optimism with the recent stop gap measures by the Federal Government to bridge the food supply deficit.
"In particular, the 150-day duty free import window for food commodities will moderate domestic food prices.
"It is noteworthy that these measures will not lead to direct injection of liquidity into the economy as to cause further inflation," he said.
He said that the measure was a welcome development and might prove effective in the short run.
He, however, advised that it was expedient that it should be implemented with a defined exit strategy to avert a possible rollback of the recent gains in domestic food production.
"To support these initiatives, the CBN is already engaging development finance Institutions like the Bank of Industry (BOI) to ensure adequate support to industries with a focus on Small and Medium Scale Enterprises (SMEs)," he said.
Cardoso said that the committee also took cognisance of developments in the foreign exchange market.
"The MPC noted the narrowing spread between the various foreign exchange segments of the market, an indication of price discovery and improved market efficiency, thus reducing opportunities for arbitrage and speculation.
"The committee noted that the increase in the level of external reserves would further build confidence for a more stable exchange rate.
"It, thus, urge the apex bank to explore available avenues to improve inflows, especially through
diaspora remittances," he added.
He said that members of the committee also noted the effort of the federal government and private sector towards improving domestic refining capacity.
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"This is expected to reduce foreign exchange, currently being expended on the importation of refined petroleum products," he said.
Meanwhile, the CPPE, in a statement on Tuesday, said the moderate increase showed that the CBN was listening and responding to the suggestions of financial stakeholders to stop aggressive tightening measures.
He explained that, although he preferred a pause on rate increases because of the challenges businesses were facing.
"The marginal increase marks a softening of the tightening stance. It is tolerable," Yusuf said.
The CPPE boss, however, called for speedy implementation of fiscal policy measures to tackle inflation.
"Already, the economic stabilisation plan contains some 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 per dollar.
"The adoption of this recommendation would have a considerable impact on the cost of goods and services in the country," he said.
