CBN further increases interest rate; Cardoso assures that petrol from Dangote will moderate FX pressure

Stories by Kadiri Abdulrahman

Abuja, Sept. 24, 2024

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has further increased the Monetary Policy Rate (MPR) by 50 basis points to 27.25 per cent from 26.75 per cent.

The Governor of the CBN, Yemi Cardoso, made this known on Tuesday in Abuja, while reading the communiqué from the 297th meeting of the MPC.

Cardoso announced that the committee also decided to raise the Cash Reserved Ratio (CRR) by 50 basis points from 45 per cent to 50 per cent for Deposit Money Banks (DMBs), while it is 14 per cent to 16 per cent for merchant banks.

The committee, however retained the Liquidity Ratio at 30 per cent, and also retained the Assymetric Corridor at +500/-100 basis points around the MPR.

Cardoso, at the briefing, noted that lifting of petroleum products from the Dangote Refinery will moderate foreign exchange demand pressures, stressing that it would also moderate transportation cost, thereby easing food prices.

“The committee expressed optimism that the lifting of refined petroleum products from Dangote refinery will moderate transportation costs and significantly support the easing of food price pressures in the short to medium term.

This is also expected to moderate foreign exchange demand for importation of refined petroleum products, with a positive spillover on external reserve and improvement in the overall balance of payment position,” he said.

Cardoso also said that an assessment of the performance of Nigeria’s financial institutions indicated that they were stable.

“Members assessed the performance of key financial soundness indicators and noted with satisfaction that inspite of familiar headwinds, the banking industry remains safe, sound, and stable.

“The Committee, however, emphasised the need to sustain supervisory oversight on the industry to strengthen its continued support to the economy,” he said.

On food inflation, Cardoso said that the upside risks remained flooding, hike in energy prices, scarcity of petrol and most importantly, insecurity in farming communities.

He said that, considering the weight of food in the Consumer Price Index (CPI) basket, the MPC recognised the efforts of the Federal Government in addressing insecurity in farming communities.

He stressed the need to remain steadfast.

“In addition, the MPC applauded the ongoing efforts of the Federal Government to bridge the food supply deficit through the duty-free import window for food commodities,” he said.

The CBN Governor, who is also the Chairman of the MPC said that the decision by the Committee to further tighten the MPR was unanimous.

Cardoso, who said this while presenting the communique, noted that 11 of the 12-member committee present at the meeting approved the decision to further tighten the rate.

Cardoso announced that the MPC decided to raise the baseline interest rate also known as the MPR for the fifth consecutive time, by 50 basis points from 26.75 per cent to 27.25 per cent.

According to him, the MPC also raised the Cash Reserve Ratio (CRR) of Deposit Money Banks by 500 basis points to 50 per cent from 45.00 per cent.

It raised the CRR of merchant banks by 200 basis points to 16 per cent from 14 per cent.

He said that the MPC retained the asymmetric corridor around the MPR at +500/-100 basis points, and also retained the Liquidity Ratio at 30.00 per cent.

“The Committee noted the moderation in headline inflation year-on-year in July and August.

“In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the apex bank’s tight monetary policy stance.

This is expected to improve confidence, which will enable economic agents to plan in the medium to long term,” he said.

He said that the committee was, however, unanimous in recognising that a lot more was required to actualise the price stability mandate of the CBN.

“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,” he said.

He said that the committee was also concerned about the need to mop up excess liquidity, address foreign exchange demand, as well as growing fiscal deficit.

He, however ruled out the Ways and Means option in addressing the deficit.

“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 and Means.

” Furthermore, members observed a strong correlation between Federation Accounts Allocation Committee (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,” Cardoso said.