Business - Business & Economy - News - November 22, 2022

CBN gives reasons why controlling monetary policy rate was raised again to 16.5%

By Bassey Udo

The 11-member monetary policy committee (MPC) unanimously voted to raise the controlling lending rate again to 16.5 percent to consolidate the gains of its previous tightening policy to curb inflation in the economy, the governor of the Central Bank of Nigeria (CBN), Gowin Emefiele, said on Tuesday.

The CBN governor who spoke at the end of the MPC meeting for November 2022, said despite the decision to raise the monetary police rate, otherwise called the lending rate, by 100 basis points, from 15.5 percent in September, all other parameters were retained.

Apart from the asymmetric corridor which was retained at +100/-700 basis points around the MPR, Emefiele said cash reserve ratio (CRR), which is the cash savings retained by the commercial bank with the CBN, was also retained at 32.5 percent, same as the Liquidity Ratio retained at 30 percent.

Last week, the International Monetary Fund (IMF) in its review of the Nigerian economy at the end of its Mission staff visit supported CBN’s monetary policy to tighten liquidity in the financial system and curb inflationary pressures by increasing the MPR by a cumulative 400 basis points, while also raising the CRR.

Raising the MPR to 15.5 percent was the second time the rate would be raised since it was moved from 13 percent in July to 14 percent, while CRR, was also increased from 27.5 percent to 32.5 percent within the same period.

Amid continued decline of the global economy due primarily to growing energy prices, supply chain bottlenecks, rising inflation, looming food crisis, and skyrocketing interest rates, the CBN governor said the committee resolved to continue to tighten to narrow the negative real effective interest margin.

“On the decision whether to loosen, hold or tighten the policy stance, the Committee felt, given that all the causative factors, such as the Russia-Ukraine war, supply chain disruptions, slowdown in China, rising inflation in advanced economies and other headwinds were still dominant, a loosen option was not desirable.

“Also, with the rising inflation, loosening the stance of policy would lead to a more aggressive rise in inflation and erode the gains already achieved through tightening.
“To hold, MPC was of the view that a hold stance at a period close to December festive season and expected heavy spending during the 2023 general election at a time of high inflation would greatly jeopardize the gains of the previous policy rates hikes and plunge the economy deeper into the inflation trap.

“The MPC, therefore, decided to continue to tighten, but at a somewhat lower rate, noting that tightening the stance of policy would narrow the negative real effective interest margin and thus improve market sentiment and further restore investor confidence.,” the CBN governor said.

Meanwhile, Emefiele expressed confidence that given the steps and monetary policies deployed by the bank, inflation would be brought under control.
While admitting that raising the rate could hurt growth, CBN governor said it became inevitable to keep inflation in check.

Whether the CBN was considering an extension of the deadline for old notes beyond January 31, 2023, Emefiele said the deadline was sacrosanct.
The Committee observed the decline in the external reserves position, as gross external reserves decreased by 1.34 per cent at end-October 2022 to US$36.87 billion, from US$37.39 billion at end-September 2022. With indications of lower crude oil prices in the futures market, Members urged the Bank to sustain its current policies to boost non-oil exports in order to shore up the external reserves.

Reviewing the interventions of the CBN in various sectors of the economy, Emefiele said the cumulative disbursement under the Anchor Borrowers’ Programme (ABP), stood at ₦1.067 trillion to over 4.6 million smallholder farmers cultivating 21 commodities across the country.

Also, he said a total of ₦745.31 billion was disbursed under the Commercial Agriculture Credit Scheme (CACS) to finance large-scale agro-production and agro-processing stands for 680 projects, while about ₦48.30 billion has been disbursed so far under the ₦1.0 trillion Real Sector Facility to seven new real sector projects in agriculture, manufacturing, and services, with cumulative disbursement at ₦2.15 trillion to 437 projects across the country.

Details of the disbursements included projects in manufacturing (240), agriculture (91), services (93), and mining sector (13).
Under the 100-for-100 Policy on Production and Productivity (PPP), the CBN governor said cumulative disbursement under the facility stood at ₦114.17 billion in 71 projects, while about ₦4.00 billion was disbursed under the Intervention Facility for the National Gas Expansion Programme (IFNGEP) to promote the adoption of compressed natural gas (CNG) for transportation and liquefied petroleum gas (LPG) for cooking.

To support the resilience of the healthcare sector, Emefiele said the CBN’s cumulative disbursement under the Healthcare Sector Intervention Facility (HSIF) was about ₦135.56 billion for 135 projects in pharmaceuticals (33), hospitals (60), and other services (42).

Under the Micro, Small, and Medium Enterprises (MSME) sector, the CBN governor said the CBN provided total support of N150.22 billion and N96.08 billion, respectively under the Agribusiness/Small and Medium Enterprise Investment Scheme (AgSMEIS) and Micro, Small, and Medium Enterprise Development Fund (MSMEDF), respectively.
Cumulative disbursement under the Export Facilitation Initiative (EFI) to support export-oriented projects was about N44.58 billion.

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