Amid the persisting difficulties faced by Nigerians to access cash due to an apparent short supply of banknotes under the currency redesign policy, the monetary policy Committee of the Central Bank of Nigeria on Tuesday asked banks to ensure challenges to cash withdrawals as a result of frequent downtime in bank electronic transaction channels were resolved.
The crisis in the supply of banknotes since the introduction of the Naira redesign policy has persisted despite the intervention of the Supreme Court, which last month ordered the CBN to reverse its earlier directive for the N500 and N1,000 denominations of banknotes to cease circulating as legal tenders.
The apex Court’s intervention was expected to have curbed the problem of acute shortage of cash in the financial system for bank customers.
Although the crisis forced bank customers to resort to electronic payment platforms to carry out their financial transactions, the growing frequency of downtime in electronic transaction channels resulted in the growing frustration by customers in recent times.
During its latest meeting held last Monday and Tuesday in Abuja, the MPC reviewed the situation and called on banks and other depository corporations, online payment platforms, and other stakeholders to take steps to resolve the prevailing incidence of network failures in the immediate and short term.
Acknowledging the challenges associated with the CBN’s cash withdrawal limit policy, the MPC said removing these challenges would ensure the Naira redesign and cash withdrawal limit policies would lead to an improved in-road of cashless programme and efficiency of the transmission mechanism of monetary policy.
Regardless, the Committee noted that in spite of the challenges, the naira redesign and cash withdrawal limit policies have resulted in a sizeable reduction in currency-outside-banks, describing it as an indication of an expected improvement in the potency of monetary policy tools.
In voting to take its final policy decision, the Committee said ten of the 12 members that attended the meeting voted to raise the controlling monetary policy rate (MPR) by 50 basis points, while one member voted to raise the MPR by 25 basis points and another voted to hold the MPR.
Consequently, in the final communique read by the CBN governor, Godwin Emefiele, at the end of the meeting, the Committee resolved by a majority vote of 10:2 to raise the MPR by 50 basis points to 18.0 per cent, although all members voted to keep all other parameters constant, namely retain the asymmetric corridor of +100/-700 basis points around the MPR; retain the cash reserve ratio (CRR) at 32.5 percent, and the Liquidity Ratio at 30 percent.
In taking the decision, the CBN governor said the Committee reviewed both the global and domestic economic developments, particularly how the existing risks and new headwinds affect the economy.
At the global level, the committee noted the risks posed to the financial system as a result of the recent bank failures in the United States and Switzerland as well as the continued impact of the Russia-Ukraine war, which has caused critical strains to the commodities and energy markets stability in Europe.
With the disruptions in the commodities and energy market, the Committee said the negative impact is high on Nigeria, as the country continues to face the consequences of declining crude oil prices and supplies.
On the domestic scene, the Committee quoted data from the National Bureau of Statistics (NBS), which showed that Real Gross Domestic Product (GDP) grew by 3.52 per cent in the fourth quarter of 2022, compared with 3.98 percent in the corresponding period of 2021 and 2.25 per cent in the preceding quarter.
The NBS data also showed the economy maintained a positive growth trajectory for nine consecutive quarters, since exiting recession in 2020, driven largely by sustained growth in the services and agricultural sectors as activities associated with interventions by the CBN in growth enhancing sectors of the economy.
The Committee, however, expressed concern over the marginal increase in headline inflation (year-on-year) in February 2023, to 21.91 percent, from 21.82 percent in January 2023, a 0.09 percentage point increase.
The Committee attributed the increase to a minimal rise in the food component to 24.35 percent in February 2023, from 24.32 percent in January 2023, while the core component moderated to 18.84 percent in February 2023, from 19.16 percent in January 2023.
The shocks to the food component, the committee noted, were driven by high cost of transportation of food items, lingering security challenges in major food-producing areas and legacy infrastructural problems, which continue to hamper food supply logistics.
On the performance of CBN’s various interventions aimed at stimulating production and productivity across the real sector, the Committee said between January and February 2023 a total of of N12.65 billion was disbursed to three agricultural projects under the Anchor Borrowers’ Programme (ABP), bringing the cumulative disbursement under the Programme to ₦1.09 trillion to over 4.6 million smallholder farmers cultivating or rearing 21 agricultural commodities on an approved 6.02 million hectares of farmland across the country.
Also, the CBN released about ₦23.70 billion under the ₦1.0 trillion Real Sector Facility to eight new real sector projects in agriculture, manufacturing, and services, with cumulative disbursements under the Real Sector Facility at about ₦2.43 trillion, to 462 projects across the country, comprising 257 manufacturing, 95 agriculture, 97 services and 13 mining sector projects.
Under the 100-for-100 Policy on Production and Productivity (PPP), the CBN also released ₦3.01 billion under the Nigerian Electricity Market Stabilisation Facility (NEMSF-2) for capital and operational expenditure of distribution companies (DISCos) to facilitate their improved liquidity status and aid their recovery of legacy debt, bringing the cumulative disbursement under the facility to ₦254.39 billion.
To take its final decision during the meeting, the MPC said it took into consideration the current inflationary trends in most major economies and the reported impact of policy rate hikes aimed at reining-in inflation on financial system stability in the global financial system.
While the continued rise in headline inflation remained a significant problem confronting the economy, the committee said other macroeconomic variables were moving in the right direction, despite observed headwinds.
On whether to continue its rate hike to further dampen the rising inflation, or hold to observe emerging development and allow for the impact of the last five rate hikes to permeate the economy, the committee said loosening would gravely undermine the gains achieved so far.
The MPC observed the continued upward risk to price as a result of planned removal of fuel subsidy; rising prices of other energy sources; continuing exchange rate pressure, and uncertain climatic conditions.
“These (conditions) in the view of members, provides a compelling argument for an upward adjustment of the policy rate, albeit, less aggressively,” the MPC said.
