.. Says insecurity in food producing zones and energy cost driving inflation
…As External Reserves hit $37b
…Capital Importation at $5 b
The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate by 50 basis points from 26.25 percent to 26.75 percent.
The Governor of the bank, Mr. Olayemi Cardoso disclosed this at a press conference to announce the outcome of the 296th Monetary Policy Committee (MPC) meeting in Abuja, Tuesday.
The bank set a new Asymmetric Corridor of +500/-100 from +100/-300 around the MPR; Cash Reserve Ratio of 45 percent for Deposit Money Banks and 14 percent for Merchant Banks, while Liquidity Ratio was left at 30 percent.
Mr. Cardoso disclosed that the Monetary Policy measures of the apex bank were yielding desired results with capital important at end of June recording $5. 92 billion compared with $1.77 billion in the same period of last year.
He said that the high inflation rate was of a great concern to the MPC which noted that insecurity in food producing zones in the country and energy costs were largely responsible for the high inflation in the country.
Those problems, he said needed urgent attention to effectively tackle the rising inflation.
On the considerations of the committee, the governor said it was mindful of rising cost of living for households and high cost of business and expressed its resolved to take necessary measures to bring inflation under control.
According to Mr. Cardoso, “The Committee was mindful of the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control. It re-emphasized its commitment to the Bank’s price stability mandate and remained optimistic that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near term.
“This is hinged on monetary policy gaining further traction, in addition to recent measures by the fiscal authority to address food inflation.
In its consideration, the Committee noted the persistence of food inflation, which continues to undermine price stability. It was observed that while monetary policy has been moderating aggregate demand, rising food and energy costs continue to exert upward pressure on price development.
Insecurity in farming communities
“The prevailing insecurity in food producing areas and high cost of transportation of farm produce are also contributing to this trend. Members were, therefore, not oblivious to the urgent benefit of addressing these challenges as it will offer a sustainable solution to the persistent pressure on food prices.
“Also noted in its consideration, is the increasing activities of middlemen who often finance smallholder farmers, aggregate, hoard and move farm produce across the border to neighbouring countries. The Committee suggested the need to put in check such activities in order to address the food supply deficit in the Nigerian market to moderate food prices.”
Collaboration with fiscal authorities
The governor pledged to work more closely with the fiscal authorities, without which he noted, the desired policy outcomes would be a mirage.
He said, “The MPC, therefore, resolved to sustain collaboration with the fiscal authority to ensure that inflationary pressure is subdued.
“In addition, the Committee expressed optimism with the recent stop gap measures by the Federal Government to bridge the food supply deficit. In particular, the 150-day duty free import window for food commodities (maize, husked brown rice, wheat and cowpeas), amongst others, will moderate domestic food prices. It is noteworthy that these measures will not lead to direct injection of liquidity into the economy as to cause further inflation.
“While the measure is a welcome development and may prove effective in the short run, is expedient that it is implemented with a defined exit strategy to avert a possible rollback of the recent gains in domestic food production.
“To support these initiatives, the Bank is already engaging Development Finance institutions like the Bank of Industry (BOI) to ensure adequate support to industries with a focus on Small and Medium Scale Enterprises (SMEs).”
The CB N boss said was optimistic that the increase in the level of external reserves put at $37. 05 billion as of July 18, (compared with $34.70 billion as at end June) would go a long way to bolster confidence in the foreign exchange market.
He said that the bank would further explore available avenues to improve inflows, especially through diaspora remittances and foreign investments.
Mr. Cardoso expressed optimism that government and private sector efforts toward improving domestic refining capacity would reduce foreign exchange currently being expended on the importation of refined petroleum products.
Fielding a question on the recapitalization of banks, the CBN bossed explained that the operators had 2 years to recapitalize and that he was satisfied with reports from the capital market regarding the activities of those already there to raise funds.
The governor said that the current results in the foreign exchange market and the level of capital importation demonstrated the restoration of confidence and credibility in the Nigerian economy.
He said that global financial organization had endorsed policy measures put in place by his team and that such endorsements were indicative of the fact that his team was on the right path.
The CBN under him, he assured, “will not go to sleep” but remain vigilant to deliver on its mandate and work with the fiscal authorities to achieve an economy with a much stronger growth.
