May 22, 2024

Inflation Battle: ‘There’s no magic wand, but…’ – Cardoso, CBN Gov

CBN reduces banks' Loan to Deposit Ratio to 50%

By Obas Esiedesa, Yinka Kolawole & Victor AhiumaYoung

Citing the need to rein in inflation and achieve price stability, the Central Bank of Nigeria, CBN, yesterday raised its benchmark interest rate, the Monetary Policy Rate, MPR, by 150 basis points to 26.25 percent from 24.75 percent, the third raise less than three months, with the CBN Governor, Mr. Olayemi Cardoso, saying there’s no magic wand.

Cardoso disclosed this while briefing journalists at the end of the Monetary Policy Committee, MPC, meeting in Abuja.

However, the apex bank retained the Cash Reserve Ratio, CRR, for deposit money banks at 45 percent and the Liquidity Ratio at 30 percent.

Cardoso expressed optimism that the various tools deployed by the bank to tame inflation and create a stable foreign exchange market would yield the needed results in the coming months.

Inflation had sustained upswing for over 13 months hitting 33.69 percent Year-on- Year, YoY, fueled by food inflation.

Also, Cardoso noted that despite pressure from food inflation, the general inflation rate was “moderating”, pointing out that “the tools the Central Bank is using are working”.

He stated: “I have several times and I will say again, there is no magic wand. These are things that need to take their time.

“I am pleased and confident that we are beginning to get some relief and in another couple of months we will see the more positive outcomes from the Central Bank have been doing”.

He added, “The committee thus reiterated several challenges confronting the effective moderation of food inflation to include rising costs of transportation of farm produce, infrastructure- related constraints along the line of distribution network, security challenges in some food producing areas, and exchange rate pass-through to domestic prices for imported food items.

“The MPC urged that more be done to address the security of farming communities to guarantee improved food production in these areas.

“Members further observed the recent volatility in the foreign exchange market, attributing this to seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system.”

Investors’ confidence

Cardoso said investors’ confidence in the country was growing, adding, “we have attempted to make the market more transparent in our dealings which foreign portfolio investors want to see and which gives them the added confidence.

“We have seen that they have responded very positively to the transparency initiatives and that have given a considerable amount of confidence to them.

“The removal of the distortions that we all know about which over time have resulted in a multiplicity of different circulars to address certain things have also helped in no small measure to boost confidence in the sector”.

Fintechs regulation

The CBN Governor explained that the move to tighten regulations around the operation of Fintech companies was not aimed at putting them out of business but to ensure that the Nigerian public obtains the maximum benefit from the sector.

“The Fintechs have definitely not been singled out for any exceptional kind of treatment, on the contrary we are very proud of what the Fintechs over the years have been able to do for the country and the positive impact it has been having not just in the country but worldwide. It is for us to support them and help them to strengthen what they have been able to accomplish”, he stated.

He said the CBN was concerned about illicit flows and money laundering through the sector which created the need for heightened surveillance of the sector.

He stated that despite the increase in regulatory guidelines for the sector, no Fintech organization has had its licence revoked by the CBN, stressing that “we have had conversations with a number of them and we have explained the need for them take another look at what they are doing and the need to strengthen them”.

MPR poses more challenges for businesses — NACCIMA

Reacting to the further hike in the MPR, the Director General, Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), Sola Obadimu, said MPR hike poses more challenges for managers of businesses in the country.

He stated: “Basic economics defines capital as one of the factors of production. Therefore, if the cost of money by way of interest rates goes up, the cost of doing business further rises.

“MPR rates aside, conventional banking philosophy will encourage banks to charge higher than prevailing inflation rates when lending money.

“Thereby, in the face of rising energy costs, unstable forex rates and associated costs, managing businesses becomes more challenging. Additionally, the issues of revision of minimum wages are there to accommodate.

“Again, it’s quite a challenging time for business managers. As it is loans are currently available above 30% per annum from banks. “It’s surely neither development nor investment- friendly.”

Additional cross for investors to bear – CPPE In his comment, the founder of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the move will impose additional cross for investors to bear.

His words: “Most economic operators with credit exposures to the banks have not recovered from previous hikes. Interest rates were already around 30% threshold.

“Secondly, extant CRR of 45% has profound liquidity effects on the financial system. Both measures have dampening effects on financial intermediation, which is the primary role of banks in an economy.

“Thirdly, the monetary policy transmission channels are still very weak, given the level of financial inclusion in the economy. This limits the prospects of monetary policy effectiveness.

“Meanwhile, the new rate hike is an additional cross to be borne by investors who have exposures to bank credit facilities. Naturally, a rigid monetarist disposition by the Central Bank is expected. But we need to reckon with the costs to the economy.

“Hopefully, with the positive outlook for domestic refining of petroleum products, we may begin to see a moderation in energy cost and a pass through effect on general price level.

“This is one silver lining that is on the horizon at the moment.

“Necessary fiscal policy supports are urgently needed to compensate for the adverse impact of extreme monetarism on the economy.”

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