Barbara Bako, Abuja.
The Central Bank of Nigeria (CBN) has announced an increase in Monitory Policy Rate by 50 basis points which raises the percentage from 26.75 percent to 27.25 percent.
The Central Bank Governor, Mr. Olayemi Cardoso made this announcement on Tuesday after the two day Monetary Policy Committee (MPC) meeting in Abuja.
This decision according to the CBN governor is to combat the rise in inflation while using every tool at the MPC’s disposal till such a time headline inflation is down to a tolerable level.
However, the Committee retained an asymmetric corridor around the MPR at +500/-100 basis
points, in addition to raising Cash Reserve Ratio ( CRR) 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 and retained Liquidity Ratio at 30.00 per cent. He justified MPC action of consistent tightening measures .
Cardoso said, “I would like to, first and foremost say that as Central Bank, this is something I’ve said before and I’m not tired of saying it: that we are resolute in our focus on bringing down inflation .We will use all the tools at our disposal to ensure that that happens.”
“We are not going to spare any effort in doing that. The numbers clearly show that we are heading in the right direction. The fact that we are seeing the reductions and the decimation in inflation over the course of the last month and a half is clearly the reason. However, we are not out of the woods yet. And we really cannot take any chances”, he added.
On the issue of inflation, “Truly, we have been able to have an ongoing dialogue with other stakeholders over a period of time to ensure that the food component moderates, and we hope that will continue to be the case. But it’s also clear that there are other factors that are engaged in both prices and public demand that needs to be focused on. Indeed, we intend on doing exactly that. And that is the reason why we have taken the stance that we have taken – to tighten, to continue to do so until we bring this under control”, he said.
He added that, “as far as I know, there is no economic model that tends to take people out of poverty when inflation is accelerating at the levels that we are seeing “.
Appraising the bank decision in respect to forex exchange policy in the last one year, Cardoso said actions and decisions taken by CBN, restored the confidence and trust of investors in Nigeria’s economy especially with clearance of forex backlogs.
“I think it’s important to understand we can’t divorce the situation that took place over a number of years in the past one year. First and foremost, we came into a very loose money supply situation. Between 2015 and 2023, the past eight years witnessed an incredible amount of pumping of liquidity into the system.
Cardoso explained that “In 2015, the money supply was about N19 trillion ,it was N54 trillion in 2023.That’s a huge increase, and a substantial amount of that, as I’m sure you all know, was through Ways and Means. Essentially, printing of money resulted in a huge amount of money chasing few goods because this is the implication, chasing the same amount of goods, a relatively small amount of goods. So I think that context is very, very important to have. And to put it in another way, while the economy on average was growing at 1.2% during that time, money supply was growing at 12.6%. “
The CBN boss said, “Let’s not forget that we had a situation where global oil prices collapsed in 2015. As a result of the collapse in oil prices, foreign exchange began to dwindle. And it’s important to understand that, in this period, the response to that , was really lesser foreign exchange and fixing of foreign exchange prices. And that also harmed the economy to no end.”
“In other words, we had a situation where the response to excess money supply, little foreign exchange available, was to fix exchange rates. Which now resulted in multiple exchange rates and arbitrage opportunities between one and the other. And of course, this in itself resulted in a backlog of foreign exchange”, he said.
The implications amongst others, Cardoso said include, the real sector economy finding it extremely difficult to access forex.
“This is where all these things are complicated. Sometimes people forget that this is the context in which we came into the cycle of the central bank. So it’s just what it is.”
He said “The real sector at the time, obviously unable to access foreign exchange, and things really got difficult and inflation continued to spike. So in that situation, we came into the saddle. And of course, a number of things happened.One of which, of course, is the background I’ve given you. Attempt to harmonize the multiple exchange rates, and I believe that that clearly has brought about the results it has.”
FG calls on MDAs to stick to mandate for 2025 budget plan
He said “We no longer have these multiple rules. And including the fact that exchange rates are a lot more flexible and people are more able to transact their businesses. Through willing buyers, willing sellers as opposed to a situation where multiple exchange rates discourages or does not enable that to happen. So clearly, that has helped in those moments.”
“In all this, the encouragement for people to transact in a market has got to be when the confidence has been built up. And we believe that that’s what we have been able to do through clearing the backlog of $ 7 billion that I mentioned to you earlier. And being a lot more transparent in operations, which by the way includes what we are doing here”, he explained.
Evaluating his achievements in the last one year in the CBN saddle, Cardoso said his greatest achievement was restoring credibility back to the central bank and regaining the trust.
The CBN governor said, “We are not there yet. It is a continuum, but without the success of rebuilding back the trust, all the other things that we want to credit ourselves with having done or wanting to do will not happen.”
“This is the part of the reason I mentioned earlier on when I was asked the question: why did you prioritize paying back the backlog? Why couldn’t you have sort of found a way to stretch it out over a period of time? And the answer to that, quite frankly, is that it’s part of the building of the trust process.”
“People have to trust you. They have to know that irrespective of what has happened, there is somebody in the saddle who is looking at things in a very dispassionate manner and will come to the conclusions that are in the best interest of all. That is very important and that is another thing that I will talk about, which is in the process of doing all these things we have done, he added.
