The Central Bank of Nigeria (CBN), after its second Monetary Policy Committee (MPC) meeting for the year on Tuesday, further tightened interest rate and increased the Monetary Policy Rate (MPR) by 200 basis points to 24.75 percent from 22.75 percent.
It also adjusted asymmetric corridor around the MPR to +100/-300 basis points.
The MPC retained the Cash Reserve Ratio (CRR) of the Money Deposit Banks (DMBs) at 45 percent, and increased that of the Merchant Banks from 10 percent to 14 percent, while it retained Liquidity Ratio at 30 percent.
The CBN governor, Olayemi Cardoso, while briefing the media after the MPC meeting, said the apex bank was concerned about fighting inflation, a reason for the tightening.
He pointed out that the MPC is not unmindful of the attendant rise in cost of borrowing, but has to face its primary mandate of ensuring price stability.
What this means is that the cost of borrowing for the manufacturing sector and other economic agents will go up thereby leading to high costs of manufactured goods.
Responding to questions on the issue of FX backlog, Cardoso said, “With respect to the foreign exchange forwards, when we came in September, we had a backlog of forwards that were contracted. It was very important for the credibility of the CBN at that time, we certify and take care of the forwards.
“There were a number of transactions that had issues with genuineness. We brought in Deloitte Consultants to look at the books.
“We determined that a number of transactions were not qualified for payment. In some cases, we had some allocations in million of dollars which were never requested for. We had somewhere there was no Naira but they were allocated, etc. And it was for that reasons that we refused to validate those transactions because apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.
“The law enforcement agencies are now looking into those transactions that are not valid to be paid as far as we are concerned. The law enforcement agencies are taking it very serious about those transactions. “
“On the amount of ineligible transactions for payment, Cardoso said, “The figure is about $2.4 billion ineligible transactions. There have been several cases Allocations were made where no-one asked for, allocations were made but no Naira was available, no proper documentation, etc, those are some of the infractions that we discovered”.
Explaining why the MPR was increased, Cardoso said, “The considerations of the committee at this meeting focused on the current inflationary pressures and the need to anchor inflation expectations as well as ensure sustained exchange rate stability.”
“These considerations underscore the importance of the CBN’s commitment to the price stability mandate and the need to urgently bring inflation under control to ensure that purchasing power of ordinary Nigerians is restored in the short to medium term.
“Members noted the continued rise in headline inflation, driven largely by food prices because of supply shortages and high cost of logistics and distribution.
“The Committee, therefore, was of the view that addressing food insecurity is key to containing current inflationary pressures. On this note, Members commended the ongoing efforts of the Federal Government towards addressing food insecurity, some of these measures include the provision of various palliatives, release of grains from the strategic reserves, distribution of seeds and fertilisers, as well as farm implements for dry season farming.
“The Committee therefore called for the full implementation of the Federal Government’s agricultural policies and programmes to improve food supply and further advised for broader fiscal consolidation particularly on the improvements of tax collection and tax-to-GDP ratio.”
The MPC also enjoined the banks to expedite action on the recapitalisation of banks to strengthen the system against potential risk in an increasingly globalised world.
“Our projection is that things would begin to moderate by the end of May. The spiralling inflation will be brought under control.” Cardoso stated.
He added, “With respect to growth, it appears to be a trade-off of some sort. We expect the tightening not to be long drawn.”
Cardoso assured that the Committee will continue to monitor developments in the global and domestic economies to ensure that inflationary expectations are anchored to restore and sustain macroeconomic stability.
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