Market News

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has raised its benchmark Monetary Policy Rate by 150 basis points to 26.25 per cent from the previous 24.5 per cent. The CBN governor, Olayemi Cardoso, disclosed the key decisions taken at the 295th MPC meeting, which would rein in inflation and achieve price stability. The headline inflation for the month of April was 33.69 per cent.  This is the third time this year that the MPC would hike the lending rate.

However, the apex bank retained the Cash Reserve Ratio (CRR), which is the percentage of deposits that commercial banks must keep with the CBN, at 45 per cent and adjusted the CRR of merchant banks to 14 per cent and the liquidity ratio retained at 30 per cent. The CBN believes that the new rate will bring inflationary pressures under control. It also underscores the bank’s optimism that the various tools deployed to create a stable foreign exchange market will yield the needed results in the coming months.  Food inflation continues to soar and the naira still depreciating against major foreign currencies.

According to the latest figures from the National Bureau of Statistics (NBS), food inflation for the month of April stood at 40.53 per cent. It was 40.1 per cent in March. As of last week, the naira plummeted to N1,500/$1. At this time in 2023, the naira exchanged for N450/$. Expectedly, the CBN’s latest decision to hike interest rate has elicited reactions, with many policy experts, including Organised Private sector, expressing deep reservations that the new lending rate will lead to rise in inflation,  massive job cuts in the productive sector, especially the manufacturing and other sectors that rely on bank loans for their funding needs and generally worsen the economic situation. 

Cardoso admitted that there are several challenges confronting the effective moderation of food inflation, such as rising costs of transportation of farm produce, infrastructure-related constraints along the line distribution network, security challenges in some food- producing areas of the country, as well as exchange rate volatility. No doubt, the monetary policy tools being used by the CBN are apparently not achieving the intended results.

We believe that the CBN is using the wrong metric to fight inflation and recommend that it should engage private sector players in the formulation of monetary policies. The CBN’s approach in fighting inflation cannot ensure economic growth. The CBN should also apply an import duty exchange rate that is lower than the official rate for a specified time-frame to enable seamless business planning. The government should implement targeted fiscal and monetary policies that can boost food production, lower the cost of doing business and overhaul transport infrastructure. 

Let the government consider non-cash intervention that will reflate the economy without necessarily increasing the currency in circulation.  Transparency in the forex market is key to shoring up the value of the naira. There is need to prioritise forex and credit allocation to key sectors of the economy and stabilise the naira.