March 22, 2023

CBN admits weak links in cash withdrawals, raises policy rate


 •Hints of inflationary impact of subsidy removal

By Emma Ujah,    Abuja Bureau Chief

Amidst the continued scarcity of cash under the Naira redesign policy the Central Bank of Nigeria, CBN, has admitted failures in the online payment channels that have frustrated banks’ customers in the past two months.

Meanwhile in its bid to rein in inflationary pressures the apex bank has raised its Monetary Policy Rate, MPR by 50 basis points to 18%, from 17.5%, the fifth consecutive raise in the past nine months.

Speaking to journalists at the end of the Monetary Policy Committee, MPC meeting in Abuja yesterday, CBN Governor, Godwin Emefiele, said the apex bank is aware of the limitations of cash withdrawals with frequent downtime in bank transaction channels and urged online payment platforms to urgently overcome the challenges quickly in the interests of the banking public.

Fielding questions from the journalists, he stated: “I must apologise,    yes, online channels failed.    But no doubt it is as a result of the deluge of online transactions that hit the banking industry.

“But it is being resolved.    On a daily basis, our Payment System Management Department monitors the online payment platforms so as to make sure that when there is a downtime, they are quickly resolved so that transactions can go on smoothly.”

As at yesterday, most banks across the country were still cash strapped while the online payment platforms were epileptic in consummation of payment transactions.

On the overall Naira redesign policy, Emefiele said the implementation “has resulted in the reduction in currency outside the banks, indicating expected improvement in the potency of monetary policy tools.”

His words, “At the beginning of the Naira Redesign policy we said that there was about N3.23 trillion in circulation out of which only N500 billion was held in the banking system, while N2.73 trillion was outside the banks.

“It was published yesterday that currency in circulation is close to N1 trillion CBN continue to pump the newly redesigned currency into the market.    The truth is that at some point we will need to re-assess to know whether the currency in circulation has attained an optimal level so as to put in place measures to ensure that we don’t go to the level where we were when people kept money outside the banking system for their own benefits”.

MPR rate

In arriving at the decision to further tighten the monetary rate, Emefiele said, “MPC examined the impact of possible further rate hike on the stability of the banking system and was convinced that a further rate hike would not have a negative impact.”

According to him, the MPC focused on its attention not only on the inflationary trend in most economies of the world but also on the reported impact of policy rate hikes aimed at reining in inflation and financial systems stability in the global financial system.

His words, “Following new risks of financial contagion emerging from the scenario of failed banks in some advanced economies, members (of the PMC) examined the possibility of shocks in the Nigerians banking system and concluded that Nigerian banks remain considerably insulated from such likely contagion.

Subsidy removal risks

Speaking further on the inflationary pressures in the economy, Emefiele stated that the planned removal of petrol subsidy could exacerbate inflationary trend in the months to come, therefore further justifying a tightening position.

He said, “The MPC observed the continual upward risks to price development around the expectations of the removal of the PMS (Premium Petroleum Spirit) subsidy, rising prices of other energy sources, continued exchange rate pressure and uncertain climatic conditions.    These, in the view of members, provided a compelling argument for an upward adjustment of policy rate, albeit, less aggressively.”

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