- The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) is expected to announce its 297th meeting’s decision on Tuesday, September 24
- Among the issues to be decided upon is whether or not the MPC will hold, hike, or reduce interest rate
- The committee’s decision will have a spill-over effect on naira trading
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) concludes its 297th meeting and announces its decisions on Tuesday, September 24, there are expectations on the policies of the MPC that will shape the economy.
The committee is expected to review the country’s economic and financial conditions and determine the appropriate direction for monetary policy in the short to medium term.
Top among these decisions at the committee’s fifth meeting of the year is its stance on Monetary Policy Rates (MPR), Cash Reserve Ratio (CRR) and the impact of these decisions on the exchange rate, energy price and others.
Interest rates, CRR: Will MPC retain or increase?
It will be recalled that at its last meeting in July, the MPC increased the interest rate by 50 basis points from 26.25 per cent in May to 26.75 per cent, as predicted by TheRadar, in line with its monetary tightening stance aimed at taming inflation.
This marked the fourth consecutive increase of the MPR by the Olayemi Cardoso-led MPC since February 2024 when the rate was 22.75 per cent.
At its July meeting, the committee retained the CRR at 45 per cent for deposit money banks (DMBs), 14 per cent for merchant banks and retained the Liquidity Ratio (LR) at 30 per cent.
CBN governor, Olayemi Cardoso, who made the announcement, added that the MPC adjusted the asymmetric corridor around the MPR to +500/-100 from +100/-300 basis points.
These decisions, according to the committee, are geared towards inflation, which reached a new 28-year high of 34.19 per cent in June 2024. However, with the inflation rate recording two consecutive months of decline in July and August to 32.15 per cent, analysts and economists are wondering if the MPC will maintain its monetary tightening stance, reduce or hike the interest rate.
Like many economists, a professor of Capital Market, Uche Uwaleke, sees the MPC retaining the current interest rate. He noted that with a slowdown in the inflation rate and other central banks cutting down rates, the CBN will likely follow the trend.
He also urged the CBN to explore other measures of taming inflation other than interest rate hikes.
Professor Uwaleke said, “This is against the backdrop of the fact that headline inflation moderated in July and August. Also, the US Fed Reserve has started cutting interest rate with the Bank of England and European Central Bank likely to follow suit.
“My advice to the MPC is to completely pause the rate hikes in view of their adverse impact on economic growth and employment in an economy that is struggling with stagflation.
“I think it is time the MPC began to explore unorthodox measures for controlling money supply, as opposed to the current approach of undue reliance on the Monetary Policy Rate.”
Aligning with Uwaleke’s position, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr Chijioke Ekechukwu, said he expects the MPC to hold the current rate, urging the CBN to steer up the financial system by loosening the monetary policy.
Ekechukwu said, “This is arising from the easing off of the inflation rate. Money in circulation appears to be within control, so further tightening will not be necessary.
“It is time to stimulate and steer up the financial system by loosening the monetary policy. The current fuel price hike, which has created more hardship in the country, should not be worsened by further tightening. So, retaining the current MPR will be plausible and appropriate.”
However, the Managing Director/Chief Executive, SD&D Capital Management Limited, Mr Idakolo Gbolade, has a different opinion. He said the MPC might decide to increase the MPR slightly to further strengthen the gains of the decision implemented so far, especially looking at the current inflation figures.
Gbolade said, “The inflationary trend eased for two months in a row, however, the effect has not been felt in reality. The economy is not improving even as inflation is reducing.
“The MPC, judging from inflation figures, may decide to increase MPR slightly so as to further strengthen the gains of the present MPC decision so far.
“MPC needs to look at other economic drivers, like the exchange rate, energy and insecurity before taking decisions to increase the MPR.
“My expectation from the MPC meeting will be to hold the MPR and take further measures at ensuring other factors affecting the economy are addressed.”
MPC’s decision is expected to speak to continued naira depreciation
The continued depreciation of the naira, which is largely responsible for the exit of many multinational companies, is another issue of consideration for the MPC, as the committee's decisions will have a spill-over effect on the currency.
As of Monday, September 23, the naira traded at N1,562.66 against the U dollar at the Investors and Exporters (I&E) window a 1.37 per cent depreciation from the N1,541.22 recorded on September 20, 2024. Before settling at N1,562.66/$, the naira had fluctuated between N1,675.00/$ and N1,540.00/$.
At the parallel market, the naira closed at N1,638.62/$ after opening the day’s trading at N1,639.45/$ and fluctuating between N1,644.68/$ and N1,615.51/$
The Cardoso-led apex bank has made efforts to shore up the value of the naira by making policies aimed at increasing foreign exchange (forex) inflows, curbing speculation and hoarding activities at the forex market.
These efforts may have yielded some results. At the peak of the forex crisis in February, the Office of the National Security Adviser (ONSA), the CBN and key law enforcement agencies had collaborated to clampdown on forex speculators in the country, leading to the arrest of two executives of a crypto exchange platform, Binance.
On March 20, the CBN announced that it had cleared all valid forex backlogs to the tune of $7 billion to ensure forex liquidity.
Another masterstroke by the apex bank is its policy of Monday, June 24, granting IMTOs access to naira directly from the CBN window or through authorised dealer banks (ADBs) to settle transactions for the sale of FX in the market.
It said the measure is part of its commitment to enhancing local currency liquidity, ensuring the smooth functioning of the FX markets, improving formal remittance channels and “widening access to local currency liquidity for the settlement of diaspora remittances.”
Beyond increasing MPR, how else can CBN tame inflation?
Meanwhile, TheRadar reported that at its 296th Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 50 basis points to 26.75 per cent from the May rate of 26.25 per cent to tame inflation.
TheRadar highlighted other ways the apex bank can tackle inflation beyond increasing interest rates, which some Nigerians describe as ‘textbook economics.’
