Banking & Finance Economy

CBN increases benchmark interest rate to 14%

Forex: CBN urges Nigerians to shun speculative activities
Written by Maritime First

… Says FX repatriation hits $2.9bn in June***

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday increased the Monetary Policy Rate (MPR) to 14 per cent from its initial 13 per cent.

Reading a communiqué after the committee’s meeting in Lagos, Mr Godwin Emefiele, the CBN Governor, said the MPC also unanimously agreed to hold all other monetary policy parameters constant.

The Asymmetric Corridor was thus retained at +100 and -700 basis points around the MPR, the Cash Reserved Ratio (CRR) at 27.5 per cent and the Liquidity Ratio at 30 per cent.

Emefiele said the parameters were retained to contend the rising trend of inflation in the country.

“MPC noted with concern the continued aggressive movement in inflation even after the rate hike at its last meeting and expressed its unrelenting resolve to restore prices stability while providing the necessary support to strengthen our fragile economy.

“As regards the decision as to whether to tighten, loosen or hold, members were unanimous and so did not consider both loosening and retaining rates at the existing levels at this meeting.

“This is because loosening will worsen the existing liquidity condition in the economy and further dampen money market rates necessary to stimulate savings and investment.

“Members also felt that loosening will trigger the weakening of the exchange rate which could pass through to domestic prices.

“MPC did not also consider holding rates constant because a hold stance will suggest that the bank is not responding sufficiently to both the global and domestic price developments as inflation numbers continue to trend aggressively upwards.

“And as regards tightening policy stance, members were unanimous that given the aggressive increase in inflation, coupled with the resultant negative consequences, particularly on the purchasing power of the poor as well as retarded growth, there is the need to continue to tighten,’’ he said.

Emefiele, however, said that the policy dilemma was hinged around the level of tightening needed for inflation without dampening manufacturing output which could result from the higher cost of borrowing.

The CBN governor also said that aside from narrowing the negative real interest rates down, members were also of the view that tightening would signal a strong determination of the bank.

This, he said would also help to aggressively address its price stability mandate and portray the MPC’s sensitivity to the impact of inflation on vulnerable households and the need to improve their disposable income.

Furthermore, Emefiele said that members noted that the last 150 basis points hike by the committee in May had not permeated enough in the economy to halt the rising trend in inflation.

He noted that the month-on-month percentage current increase in headline inflation rose sharply in June 2022, compared with May 2022.

The committee also noted that other complementary administrative measures deployed by the bank to address the growth in money supply did not moderate the inflationary trend.

“Addressing a balance of policy objectives and development in the global and domestic environment, the committee resolved that the most rational policy option will be to further strengthen its tightening stance in order to effectively curtail the unabated rising trend of inflation.

“Members were conscious of the fact that output growth remained fragile.

“However, not contending inflation now could erode the moderate gains achieved in improving consumer purchasing power and thus worsen poverty levels of the vulnerable populace.

“To ensure that output still remains in focus, MPC advised the bank manager to continue to use the development finance tools to support the Agricultural and Manufacturing sectors in Nigeria.

In the same vein, Mr Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) says the race to 200 billion dollars in foreign exchange repatriation (RT200) has generated over 2.9 billion dollars as at June.

Emefiele said this on the sidelines of the Monetary Policy Committee meeting on Tuesday in Lagos.

The RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme aims to increase the country’s foreign reserves by 200 billion in Foreign exchange earnings from non-oil proceeds over the next three to five years under a new export proceeds repatriation scheme.

He noted that the RT200 incentive also recorded gains in increasing foreign exchange inflows into the country.

“The MPC was delighted that we are making progress with these initiatives, we are making progress for the 100 for 100.

“I think we have disbursed slightly above N50 billion to the 100 for 100 which is meant to really drive support for those who want to produce goods that can be exported out of the country to earn dollar revenues.

“Indeed, we are delighted that the race to 200 billion dollars is yielding good results. We found out that we had received inflows as at June this year over 2.9 billion dollars.

“ You all know that during the first quarter of 2022, we disbursed N3.6 billion as rebates for those who have conducted export activities.

“Hence, for Q2 2022, we have this morning just approved the release and payment of rebates to those who conducted the export activities to the tune of N20 billion,’’ he said.

The governor explained that the reason the bank was paying slightly over N20 billion for Q2 was because it was discovered that there had been a lot of exports found to be eligible for the rebates which were in over 600 million dollars.

Emefiele expressed joy that a lot more people were embracing export in Nigeria as a result of the incentives that were provided and paid promptly, thereby, increasing export earnings.

“We had hinted that at some point, we will get to the point where the banks will not even need to come to the CBN to buy forex exchange to meet important needs of their customers.

“We are delighted that we are moving gradually in that direction and I am optimistic that these numbers will improve by around the end of the year,’’ said Emefiele.

 

 

About the author

Maritime First