…Releases $400m to pay FX backlogs
…Says more aggressive monetary policies to follow
…Insists it’s not responsible for nation’ economic woes
From Adanna Nnamani, Abuja
In an effort to control the country’s fast rising inflation, which is currently at 29.9 percent, the Central Bank of Nigeria (CBN) has raised the monetary interest rate by 400 basis points, bringing the benchmark interest rate to 22.75 percent from 18.75 percent.
CBN Governor, Mr. Olayemi Cardoso made this known during the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday. .
Cardoso also disclosed that the committee had decided to increase the Asymmetric Corridor to +100 -700 from +100 to -300 basis points.
He added that the Cash Reserve Ratio will be increased from 32.5% to 45%, while the liquidity ratio will be retained at 30%.
Cardoso maintained that the country’s present economic problem was not the CBN’s fault, citing massive fiscal deficits, rising energy costs, exchange rate pass through, and persistent security issues in key food-producing regions as the main culprits.
Additionally, he reaffirmed the bank’s pledge to pay off its foreign exchange backlog, stating that $400 million had been paid off on Tuesday to cover part of the identified debts.
According to the apex bank governor, members of the MPC reached the decisions after considering the current inflationary and exchange rate pressures, projected inflation and rising inflation expectations.
“Members were concerned about the persistent rise in the level of inflation and emphasized the committee’s commitment to reverse the trend as the balance of risk leans towards rising inflation.
“The committee however, acknowledged the trade off between the pursuit of output growth and taming inflation, but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation. Members noted the decision to transit to an inflation targeting framework as essential to addressing the persistence of inflationary pressures in the economy, and commended the fiscal authority for the invaluable support.
“In the opinion of the committee, the options available for decision was to either hold or hike the policy rate to offset the persistent inflationary pressures. Considering the option of the old policy, the evidence revealed that previous policy rate hikes have slowed the rise in inflationary pressure, but not to a desirable extent. Members considered various scenarios of old hike and concluded that inflation could become more persistent in the medium term, and thus, pose more regulatory challenges, if not effectively anchored.
“The balance of the argument thus laid convincingly in favour of a significant policy rate hike to drive down inflation substantially. The MPC also deliberated extensively on various distortions in the foreign exchange market, including the activities of speculators putting upward pressure on the exchange rate with high pass through to inflation.
“Members were, however, convinced that the ongoing reforms in the foreign exchange market will yield the desired outcome in the short to medium term. Some of these reforms include the unification of the foreign exchange market, promotion of a willing buyer and a willing seller market, removal of all limits or margins for IMTO remittances.
“Introduction of a two way post system and the broad reforms in the BDC segment of the market to restore stability, enhance transparency, boost supply and promote price discovery in the Nigeria autonomous foreign exchange market (NAFEM). The committee reviewed the key financial indicators of the banking system”
The CBN governor further said:“We at the CBN are not responsible for the woes of today. We are part of the solution and are determined to work to get out of the mess that the country is in.
“We assumed responsibility at a time when there was a crisis of confidence. We cannot turn back the clock. All we can do is to do the difficult things to make a bad situation better.”
“In terms of the backlog, we are committed in clearing the backlog of identified and genuine requests that are pending and I can tell you, just today, we paid out $400 million to those that have been so identified. we are committed to doing further to those that are genuinely identified and proven cases.”