MPC Unveils Multi-Faceted Approach to Tackle Inflation and FX Challenges
By Patience Ikpeme
The Monetary Policy Committee (MPC) has voted to hike interest rates again to curb inflation.
Central Bank of Nigeria (CBN) Governor Yemi Cardoso while addressing the press after the MPC meeting in Abuja spoke to other issues like irregularities in foreign exchange transactions, and the ongoing Binance controversy.
The MPC’s most prominent decision was raising the benchmark interest rate to 24.75%, a substantial increase from the previous rate of 22.75%.
Governor Cardoso emphasized the central bank’s commitment to curbing inflation and restoring the purchasing power of Nigerians. He outlined additional measures aimed at achieving this goal.
The CBN maintained the Cash Reserve Ratio (CRR) for commercial banks at 45% and that for merchant banks was increased from 10% to 14%. Liquidity ratio remains unchanged at 13% and adjust the asymmetric corridor around the MPR to +100/-300 basis points. These measures aim to tighten control over the money supply and dampen inflationary pressures.
The MPC called for the full implementation of government agricultural programmes and policies to improve food supply and reduce reliance on imported food, a significant factor influencing inflation.
Governor Cardoso disclosed how $2.4 billion in ineligible foreign exchange forward transactions was discovered during a forensic audit. He highlighted several red flags, including allocations without requests, lack of Naira funding, and dubious documentation. These transactions he said have been flagged for law enforcement investigation. The CBN, however, has settled verified and legitimate foreign exchange obligations.
The MPC expressed satisfaction with the recent stability in the foreign exchange market, attributed to the CBN’s policy actions and increased transparency. Governor Cardoso addressed concerns about limitations on access to foreign exchange for dairy imports. He emphasized the CBN’s commitment to an open and transparent market, rejecting restrictions that favour only a few companies.
Regarding the Binance cryptocurrency exchange controversy, Governor Cardoso acknowledged collaboration with law enforcement agencies (EFCC, SEC) and the National Security Adviser’s office. However, he clarified that cryptocurrency regulation falls under the purview of the Securities and Exchange Commission (SEC), not the CBN. The CBN also has no role in the reported detention of individuals linked to the Binance case.
The MPC acknowledged the potential trade-off between curbing inflation and economic growth. However, Governor Cardoso expressed optimism that the interest rate hike will be temporary and growth is expected to moderate from May onwards. He projected a significant decline in inflation rates by year-end. The MPC will continue to monitor economic data and market conditions to make adjustments as needed at the next meeting in May.
The CBN and the MPC’s multi-pronged approach targets both inflation and foreign exchange market irregularities. The success of these measures will depend on effective implementation, government cooperation in boosting food production, and the overall response of the Nigerian economy.
