CBN Raises MPR to 27.5% Amid Persistent Inflation

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday, decided to further raise the Monetary Policy Rate (MPR), the benchmark interest rate by 25 basis points to 27.50 per from 27.25 per cent.

The apex bank, which cited the continued inflationary environment and the need to achieve price stability for the hike, however, retained other monetary policy tools, including 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 as well as the Liquidity Ratio at 30 per cent.

The CBN Governor, Mr. Olayemi Cardoso, while addressing journalists at the end of the 2- day meeting of the MPC in Abuja, the last for the year, said the committee remained focused on curtailing rising prices, and achieving price stability, adding that members unanimously agreed to further tighten policy.

The MPR is the rate at which commercial banks borrow from the central bank and often determines the cost of funds in the economy. This is the sixth consecutive but less aggressive interest rate hike under the current leadership of the apex bank,

The CBN governor said the meeting occurred on the backdrop of renewed inflationary pressures, as the headline, food and core measures rose year-on-year in October 2024.

The committee was particularly worried that all three measures also inched up on a month-on-month basis, suggesting the persistence of price pressures, with attendant adverse impacts on income and welfare of Nigerians.

Cardoso, who read the committee’s communique, said, “Members, therefore, agreed unanimously to remain focused in addressing price developments.”

He noted that while food prices remained a key contributor to the uptick in inflation, the MPC commended the efforts of the federal government for the improved security, especially in the North-East of the country, which would likely improve food production.

Citing data from the National Bureau of Statistics (NBS), he said headline inflation, year-on-year, rose to 33.88 per cent in October 2024 from 32.70 per cent in September 2024 while month-on-month, inflation rose to 2.64 per cent in October 2024 from 2.52 per cent in the previous month, with both the food and core components contributing to the continued rise in headline inflation.

Food inflation rose further to 39.16 per cent in October from 37.77 per cent in September, while the core index also rose to 28.37 per cent in October, from 27.43 per cent in the preceding month.

Hence, Cardoso said the central bank remained resolute and committed to continuing to fight the war against inflation, adding that the bank’s return to orthodox monetary policies had come to stay under his watch.

He said, “There’s no going back on that. And as I have said at previous fora, we are going to deploy everything in our arsenal to ensure that we are able to tame it (inflation). And of course, this entails the return to orthodox monetary policies.”

He insisted that the CBN’s policy initiatives are in the right direction, adding that there is a time-lag between implementation and impact.

The CBN governor further assured Nigerians that greater results from recent policies should be expected by the first quarter of 2025.

He also said the bank was working assiduously with other agencies to clear structural impediments including supply disruptions and infrastructure among others, adding that these often require time to manifest.

The MPC, however, noted the moderation in the prices of farm produce and commended the efforts of the federal government in driving increased productivity in the agricultural sector.

Cardoso also stated that the recovery of output growth was sustained, with Real GDP growing by 3.46 per cent year on year in the third quarter of the year compared with 3.19 and 2.54 per cent in the preceding and corresponding periods, respectively.

He said the growth was driven by both the oil and non-oil sectors, with a notable contribution from the services sector as non-oil sector grew by 3.37 per cent in the third quarter compared to 2.80 per cent in Q2, while the oil sector grew by 5.17 per cent, year-on-year, compared to 10.15 per cent in the preceding quarter.

He also disclosed that the external reserves rose marginally to $40.88 billion as at November 21, 2024 from $40.06 billion at end-October, available to finance 17 months of imports.

The CBN governor further acknowledged the role of rising energy prices on the general price level due to its impact on factors of production, pointing out that the recent increase in the price of Premium Motor Spirit (PMS) had also impacted the cost of production and distribution of food items and manufactured goods.

However, the apex bank boss, expressed optimism that the full deregulation of the downstream sub-sector of the petroleum industry would eliminate scarcity and stabilise price levels in the short to medium term.

The MPC, therefore, reiterated the need to strongly forge ahead with the deepening collaboration between the monetary and fiscal authorities to ensure the achievement of synchronised objectives of price stability and sustainable growth.

Specifically, the committee noted the improvement in the external sector, reflected by the increase in the current account surplus, enhanced remittance and capital inflows which have impacted the external reserves positively.

Cardoso further maintained that key policy measures by both the monetary and fiscal authorities are yielding the desired outcomes.

The MPC, nonetheless, expressed concern over the persisting exchange rate pressure, reflecting continued high demand in the market.

Consequently, the committee urged the CBN to explore measures to boost market liquidity while it noted with satisfaction the continued resilience and stability of the banking system despite significant exogenous and endogenous headwinds.

Members particularly noted that key financial soundness indicators including Capital Adequacy Ratio (CAR), Non-Performing Loan ratio (NPL), Liquidity Ratio (LR), among others, remained strong.

The MPC, however, called on the CBN to maintain its close surveillance on the banking system to sustain compliance with regulatory thresholds and continued health of the industry, and acknowledged the bank’s efforts in deepening financial inclusion, towards improving the transmission mechanism of monetary policy to enhance policy effectiveness.

Cardoso stressed that the MPC remained focused on the optimal policy choice to address the uptrend in price development, stabilise the exchange rate and anchor inflation expectations appropriately.

On the central bank’s determination to further tighten policy, he said, “There’s no going back on that. Now, it’s also important for people to understand that there’s a time lag between when you implement policies and when they have an impact.

“And that time lag, quite frankly, can be anything up from six months to nine months to a year. It all depends on what you’re doing. Our own perspective is that we expect to see greater results in the first quarter of 2025.

“And you can do the math from the time we started tightening. So, we expect to see this in the first quarter of 2025. In addition to that, we are working very assiduously with some of the relevant agencies to ensure that those structural impediments are handled appropriately.”

He said, “And obviously, some of these things themselves take time, supply disruptions, and infrastructure issues, which we all know, and a whole host of different things. And ours is to collaborate, to advise, and to help such that at least we begin to make that transition to a point where these issues are adequately dealt with. On our own also, we are doing what we can within the limits of markets, and in particular, the foreign exchange markets.

“And by that, I refer to the fact that we appreciate that many times some distortionary elements come into a market, and that is why we as regulators, that’s what we are there for. So, we are ensuring that we are on top of the game and that the foreign exchange market operates at its most optimal manner.”

Asked about measures being adopted by the CBN to improve the value of the local currency, Cardoso maintained that the bank alone cannot determine the value of the Naira, pointing out that this is tied to various factors, particularly patronage of locally made goods.

He urged Nigerians to reduce their preference for imported items and support the government’s efforts to diversify and grow the domestic industries through local patronage.

Commenting on the decisions of the Monetary Policy Committee (MPC) of the CBN, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said that it is troubling that despite the declining growth performance of many critical sectors of the economy as evidenced in the third quarter GDP report, the MPC still continued its monetary tightening stance.

Yusuf noted that the GDP’s sectoral performance report also revealed a glaring disconnect between the the financial services sector and the real economy.

He said: “The financial services sector recorded a growth of 32 per cent, while agriculture and manufacturing grew by 1.14 per cent and 0.92 per cent,” adding that the MPC’s hawkish disposition would deepen this distortions.

“Meanwhile strategic economic sectors such as agriculture and manufacturing and real estate recorded declines in growth in the third quarter.

“Air transport and textile remained in recession.

These sectors need monetary and fiscal support, not a further tightening of monetary conditions.

“In the meantime, we urge the CBN to upscale its support for development finance institutions to make up for the financing challenges created by the sustained tight monetary policy regime,” Yusuf said.

James Emejo and Nume Ekeghe

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