James Emejo

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) recently after its 301st meeting, decided to retain all monetary policy parameters, including the Monetary Policy Rate (MPR), the benchmark interest rate, unchanged at 27.50 per cent.

The MPC also retained the asymmetric corridor around the MPR at +500/-100 basis points, Cash Reserve Ratio of Deposit Money Banks at 50 per cent and Merchant Banks at 16 per cent, and left the Liquidity Ratio unchanged at 30 per cent.

CBN Governor, Mr. Olayemi Cardoso, explained that the resolution aimed to sustain the current momentum of disinflation, and sufficiently contain price pressures.

It was the third consecutive time that the central bank had kept interest rate at current levels, after several months of monetary tightening to tame rising prices of goods and services amid foreign exchange issues which had now been relatively subdued.

The MPR is the rate at which the central bank lends to commercial banks and often determines the cost of funds in the system. Businesses have blamed the rising cost of products on high cost of production linked closely with high borrowing costs.

Experts believe that monetary tightening remained a two-edged sword – while it is crucial to raise rates to woo Foreign Direct Investment (FDIs) into the domestic economy, it leaves businesses groaning under high borrowing costs.

On the other hand, the apex bank had attributed its tight monetary regime to inflationary pressures.

Cardoso had since inception of office, made inflation-targeting a cardinal policy focus of his administration.

He had variously defended the bank’s need to address the high inflationary environment to encourage international investors who detest such conditions.

At a recent meeting with investors early in the year, Cardoso stressed that it was of no use for businesses to harvest high returns in an inflationary environment.

He had thus vowed to pursue price stability, a core mandate of the apex bank.

Cardoso reiterated his stance that the CBN’s policy toolkit is working, and therefore, reining in inflation, noting that the target was to cut inflation to a single digit.

However, it is unclear, whether the apex bank will achieve this aim before reducing MPR.

He said, “We also recognise that our goal is to ensure that we get to single-digit rate. So, much as it is coming down, we’re still determined to ensure that we bring it down to single-digit.

“I want to say that upfront. Let us also remind ourselves a little bit about where we’re coming from. We are coming from a situation of enormous money supply, and I’ve spoken about this in different fora. I’ve spoken about the huge injections that went into our economy from Ways and Means unprecedented and probably difficult to find any other place to compare it with.

“I’ve also spoken about the huge intervention injections that went into our economy and still, quite frankly, are with us. Those things are of such a proportion that they just simply do not disappear overnight.

“Those are some of the challenges that we have to cope with, and that is why our response to this is that we are operating a very tight monetary situation.

“We have absolutely no choice but to do that. It’s at a cost, but it needs to be done if we are going to achieve the single-digit inflation rate I spoke about – these are part of the measures.”

He said, “In addition to that, I want to say that there are upside positives that will complement the work of the central bank. For example, we are aware that for a while there have been issues with respect to revenue coming in from the oil and gas side.

“Now there are very, very positive shoots coming out on that, we see that the NNPC has, for the first time since January of this year, has published the fact that we are meeting our OPEC quota. That’s very good news.

“It’s very good news, and it all adds to the very, positive trajectory ahead. Of course, there’s also greater transparency with respect to NNPC and its earnings, and of course, it’s coming into its account and to the monetary authorities.

“I saw something on television just before I came in here, where they were publishing their monthly profits. That’s also very encouraging. It’s very encouraging.”

According to the CBN governor, “I think some of these areas will basically help to bring down the inflation that we are talking about. We are also ensuring that the handshake that is supposed to take place between the fiscal and monetary side, which is very important, the close coordination that needs to take place between the two is going to continue.

“And I was privileged again to have been called on to address the NNPC first retreat in which we had very useful discussions, and which I believe, showed for greater collaboration.

“As we go along, we will continue to use our tools, the MPR, the CRR, ensuring that the foreign exchange market works efficiently. We are going to continue to do that, and you can rely on us for that, and of course, the inflation expectations, we will manage them in such a way that we are as transparent and open as possible, so that people understand, the various publics understand where we are headed.”

“But in summary, we are determined to ensure that we can we use all the different tools at our disposal to bring down inflation to single-digit levels,” Cardoso added.

Though prior to the recent MPC meeting, there were expectations from analysts that the central bank would consider a rate cut, given that inflationary pressures, according to the CBN governor, were beginning to wane.

Cardoso said maintaining a hold on policy stance would continue to address existing and emerging inflationary risks, stressing that the MPC would continue to undertake rigorous assessment of economic conditions, price development, and outlook to inform future policy decisions.

According to him, given the persistent uncertainty in the policy environment and underlying price pressures, monetary policy will need to maintain its current stance until risks to inflation recede sufficiently.

The central bank governor reaffirmed its commitment to price stability mandate, noting that it would take appropriate measures to foster stability and confidence in the economy, adding that the apex bank will continue to assess developments to guide informed monetary policy decisions.

Cardoso, though acknowledged the decline in headline inflation in June, the third consecutive month of deceleration, largely driven by the moderation in energy prices and stability in the foreign exchange market – pointed out that despite the positive developments, uptick in month-on-month headline inflation, further suggested the persistence of underlying price pressures.

He added that the continued global uncertainties associated with the tariff wars and geopolitical tensions could further exacerbate supply chain disruption and exert pressure on the prices of imported items.

Although the CBN failed to arrive at interest rate reduction at its last meeting, analysts said holding rates constant in the three previous meetings showed the committee’s disposition to adopt an expansive policy regime going forward.

Speaking in an interview with THISDAY, Economist/Group Managing Director/Chief Executive, Bristol Investments Limited, Dr. Chijioke Ekechukwu, said, “MPR needs to start dropping so that interest rates of banks will drop, and businesses will experience some reprieve”.

He said having held the MPR constant for the third time even as inflation rate decelerates, CBN is ensuring consolidation of the stability already achieved in the system.

The former Director General, Abuja Chamber of Commerce and Industry (ACCI), further pointed out that as “treasury bill rates and bond rates drop, I expect that the next MPC will start relaxing the MPR”.

Ekechukwu said, “The numbers are looking stable and better, so there is light on the other end of the tunnel.”

CBN staff projections had further indicated a further decline in inflation in the coming months, underpinned by the current tight monetary policy stance, stable exchange rate, declining PMS prices, and moderation in food prices as the harvest season approaches.

Nevertheless, Cardoso insisted that recent developments, especially the persistent tariff war and geopolitical tensions, may continue to disrupt supply chains and exert upward pressure on the prices of imports.

He had also reiterated that the apex bank was not in a hurry to reduce MPR under the conditions warrant the move.

He said, “Disinflation in the advanced economies has slowed, prompting major central banks to be cautious of upside risks to inflation. In the emerging markets, central banks continue to calibrate monetary policy to their domestic conditions, noting the persisting risks to inflationary pressures.”

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