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The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has confirmed that the Monetary Policy Committee’s (MPC) decision to further tighten the Monetary Policy Rate (MPR) was unanimously supported. Cardoso, who also chairs the MPC, made this announcement on Tuesday in Abuja while delivering the communique from the committee’s 297th meeting.
Out of the 12-member committee present, 11 voted in favor of raising the interest rate. This marked the fifth consecutive hike, with the MPR increasing by 50 basis points, moving from 26.75% to 27.25%.
In addition to the interest rate hike, the MPC also raised the Cash Reserve Ratio (CRR) for Deposit Money Banks by 500 basis points, increasing it from 45% to 50%. The CRR for merchant banks was similarly raised by 200 basis points, from 14% to 16%.
The committee chose to retain the asymmetric corridor around the MPR at +500/-100 basis points, while keeping the Liquidity Ratio unchanged at 30%.
“The Committee observed a moderation in year-on-year headline inflation for July and August,” Cardoso noted. “Moreover, the relative stability and convergence in the exchange rate across various market segments, driven by the CBN’s tight monetary stance, is expected to enhance confidence and enable economic agents to plan for the medium to long term.”
Despite the positive developments, Cardoso emphasized that the committee recognized the need for further actions to fulfill the CBN’s price stability mandate.
Rising Inflation Concerns
The committee expressed concern over persistent inflationary pressures. While food inflation showed signs of moderation, core inflation remains elevated, primarily driven by increasing energy prices. This trend, according to Cardoso, poses significant challenges and requires coordinated efforts with fiscal authorities to address rising energy costs.
The MPC also discussed the necessity of mopping up excess liquidity, managing foreign exchange demand, and tackling the growing fiscal deficit. However, the committee ruled out the possibility of resorting to the “Ways and Means” financing option to address the deficit.
Liquidity and Fiscal Deficit Management
Cardoso noted that the continued growth in money supply necessitates actions to control excess liquidity in the system, especially in relation to foreign exchange demand. The committee also highlighted concerns over the increasing fiscal deficit but acknowledged the fiscal authority’s commitment to avoid monetary financing through Ways and Means.
Furthermore, the MPC observed a strong correlation between the Federation Accounts Allocation Committee (FAAC) releases and liquidity levels in the banking system, as well as its impact on the exchange rate. The committee agreed to increase its monitoring of future FAAC releases to better manage their influence on price developments and overall economic stability
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