The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) Tuesday raised the monetary policy rate by 50 basis points to 27.25 per cent from 26.75 per cent.
The MPC held its 297th meeting on the 23rd and 24th of September 2024 to review recent economic and financial developments as well as assess risks to the outlook.
Eleven of the twelve-member committee were in attendance.
The apex bank raised the MPR contrary to predictions by the majority of analysts who had envisaged a reduction in interest rate by the bank.
According to the communiqué issued at the end of the meeting chaired by the CBN Governor, Olayemi Cardoso, in Abuja, the committee was unanimous in its decision to further tighten policy.
It decided as follows: “Raise the MPR by 50 basis points to 27.25 per cent from 26.75 per cent. Retain the asymmetric corridor around the MPR at +500/-100 basis points. 3. Raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis points to 50.00 per cent from 45.00 per cent and Merchant Banks by 200 basis points to 16 per cent from 14 per cent. Retain the Liquidity Ratio at 30.00 per cent.”
The communiqué said the committee noted the moderation in headline inflation year-on-year in July and August 2024.
In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the Bank’s tight monetary policy stance.
This, it said, is expected to improve confidence which will enable economic agents to plan in the medium to long term.
“The Committee was, however, unanimous in recognising that a lot more is required to actualize the Bank’s price stability mandate. The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices.
“The uptrend poses severe concerns to members, as it clearly indicates the persistence of inflationary pressures. Members thus reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices.
“The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures. Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through Ways & Means.
“Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as its impact on the exchange rate. The Committee, therefore, agreed to increase monitoring of future releases with a view to addressing its effects on price developments,” the meeting stated.
…Uwaleke lauds CBN
Speaking on the outcome of the MPC meeting, Director of the Capital Market Institute at the Nasarawa State University Keffi, Prof Uche Uwaleke, said the decision to raise the MPR was due to the need to address major threats to exchange rate and inflation.
He said: “My take on the recent hike in MPR is that in matters like this, the CBN usually has information that may not be at the disposal of the public.
“I want to believe the members of MPC mean well for the economy and have taken the decision to further tighten monetary policy based on strong evidence of major threats to exchange rate and inflation.”
Accordingly, Uwaleke said the task of taming inflation must be jointly tackled by both the monetary and fiscal authorities.
“So, the government has to play its part by controlling recurrent spending and focusing on productivity including ramping up assistance to small businesses,” he said.
…Hike will slow down investments – Yusuf
Viewed differently, the Centre for the Promotion of Private Enterprise (CPPE) said the CBN’s decision would hurt businesses and slow down investments and the economy.
Chief Executive Officer CPPE Dr Muda Yusuf made the observation in a statement Tuesday, a copy of which was obtained by Blueprint in Abuja.
He said it’s said such a decision was coming at a time manufacturers, entrepreneurs and other investors in the economy were struggling and needed succour.
Yusuf, who said this was at variance with the mood of most economic players at this time, added: “What manufactures and other investors need at this time is some oxygen and stimulus, not policy measures that will worsen an already suffocating situation.
“The MPR at 27.25 per cent; CRR at 50 per cent, and asymmetric corridor at +500 and -100 are very difficult monetary condition to bear for most businesses. This is given the prevailing macroeconomic and structural conditions.”
The financial expert said the second quarter GDP numbers showed clearly that the economy was still in a floundering mode, pointing out that many critical sectors of the economy slowed during the quarter.
These sectors, he said, include manufacturing and its other sub sectors such as cement, food and beverage, chemicals and pharmaceuticals, trade, ICT and real estate.
The road transport, motor assembly, publishing and motion pictures sectors, Yusuf said, contracted during the quarter while aviation, oil refining, textile , livestock and quarry and minerals sectors were still in recession.
Yusuf said: “Tightening financial conditions in the circumstances does not seem appropriate. The private sector should not be made to pay the price of liquidity growth which it was not responsible for. Issues of excess liquidity should be addressed within a causative context.
“The injection of liquidity into the system is largely public sector driven, as rightly noted by the CBN Governor. Therefore, the focus of resolving it should be within that context. Stifling the financial conditions to address liquidity issues is detrimental to investment and growth of the economy.”
On further implication the decision would impact the economy, he said cost funds would be further exacerbated, adding that the situation was made worse by the increase in CRR to 50 per cent and retention of asymmetric corridors of +500 and -100.
“We believe that the policy decisions of the CBN are most inappropriate for the prevailing economic conditions and the challenges faced by entrepreneurs in the country.
“The operating and production costs of businesses will be further exacerbated by the latest monetary policy tightening,” added the CPPE boss.