Again, CBN raises interest rate to 27.50%

THE Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has again raised the Monetary Policy Rate (MPR) by 25 basis points to 27.50 percent from the previous rate of 27.25 percent.

Mr. Olayemi Cardoso Central Bank of Nigeria Governor who announced this at a press conference on Tuesday said the MPC retained the Cash Reserves Ratio (CRR) for Deposit Money Banks (DMB) at 50 percent, and 16 percent for Merchant Banks.

Also, he said the MPC retain the asymmetric corridor around the MPR at +500/-100 basis points, and retained the Liquidity Ratio at 30 percent.

The CBN governor said foreign reserves now stands at $40.88 billion enough to finance 17 months imports.

The CBN Governor said that Nigeria will exit the Financial Action Task Force (FATF) grey list by first quarter (Q1) of 2025.

He said, “We do not want anything that will send negative signals across the waves. It is for that reason that we are well organised to exit the Financial Action Task Force (FATF) grey list. We are deepening international cooperation. We are ensuring that our AML processes and procedures work properly and also enhancing our regulatory framework going round to ensure the players play according to the rules. With that in view, our expectation is that by by the second quarter of 2025 we are going to exit the grey list of the Financial Action Task Force (FATF)”.

On the scarcity of cash in circulation, Mr. Cardoso stated, “We are ensuring that all the Deposit Money Banks (DMBs) are getting all the cash that they require; we are having regular dialogue with all CBN currency branches to ensure that there are no gaps. We are also doing spot checks and a lot is coming out from the spot checks. We’re concerned, we do not want people to suffer from the number of distortions. There may be some ad-hoc measures that will come during this yelutide season. We will do what we can to ensure that certain initiatives are taken before the period.

There may be some ad-hoc measures that will come before December. We will do what we can to ensure that people don’t suffer”.

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The CBN Governor also pointed out that “By December 2024 the Diaspora Nigeria will start operating None Residence Account programme that will enable them open accounts and transact business seamlessly.

“Many times some distortionary elements come into the market, and that’s why the CBN is there to regulate the market.

“This thing takes time, you got stay the course and you will reap the benefits.

The expectation from other parts of the world is that

Nigeria is on the right path and will continue to be as far as foreign exchange management is concerned. The bottom line is that it is time-bound issues, we do expect that in the fullness of time we will begin to reap the benefits of tightening that we have been embarking on.

“You cannot get away with the fundamentals of the economy in determining the value of the currency, you may wish it away. Our own appetite for foreign goods must change. Hopefully, it will happen over a period of time”.

Reacting to the hike in interest rate, Uche Uwaleke

Professor of Capital market in Nassarawa State University said,

“In line with many analysts’ expectations, the MPC has increased the MPR yet again. But this time around, by 25bps.

“For me, I think the marginal rate increase is a signal that the CBN will completely pause or apply the brake beginning from the first quarter of next year.

“This has to happen to stem the rising cost of funds and negative impact on credit access so that small businesses in particular can breathe.

“Regrettably, headline inflation has remained elevated and even resumed northwards despite the aggressive tightening measures by the CBN. The only area where one can see the benefits of the interest rate hikes has been in the Fx market where the impact of foreign portfolio inflows has helped to stabilise the exchange rate in the official window.

“The weak performance of the Agric and manufacturing sectors as indicated in the NBS Q3 GDP report may not be unconnected with rising interest and exchange rates.

“Indeed, the current macroeconomic challenges make it imperative for a proper synergy between monetary and fiscal policies”.

Meanwhile, finance expert and CEO, Wealthgate Advisors, Mr Adebiyi Adesuyi has advised the Central Bank of Nigeria (CBN) to find a way of revaluing the Naira, rather than always resorting MPC increase, as it has just done.

The Wealthgate Advisors’ boss noted that the increase in MPC rate to 27.50 percent will increase the cost of funds for businesses, without reducing the inflation rate in Nigeria.

He believed for the rising inflation rate to be effectively addressed, the apex bank must find an innovative way of revaluing Naira to give it a realistic exchange rate, while the government should also find a solution to the high cost of fuel.

“The interest rate hike will not result in a good economic outcome in Nigeria. Theoretically, higher interest rates are expected to reduce inflation rate; this approach works well in economies that have supportive infrastructure and appropriately valued currency.

“Nigeria is different. The inflation in Nigeria is traceable to the undervaluation of Naira; thus we have imported inflation in view of our overdependence on imported consumer and producer goods.

“The other major cause of rising inflation in Nigeria is the cost of fuel which has tripled over the last one year. This has affected the cost of moving foods and other agricultural commodities from the farms in the North to different markets in the country. The distribution of manufactured goods from factories to the markets is also affected by the high cost of fuel.

“That is why I strongly believe we must find a way revaluing our currency and work on petroleum price if we really want to address the issue of inflation,” he stated.

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