CBN Raises Interest Rate To 14% To Check Inflation

 

The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) from 13 percent to 14 percent.

CBN Governor Godwin Emefiele announced this on Tuesday during the 286th meeting of the Monetary Policy Committee held in Lagos.

READ ALSO: UPDATED: CBN Raises Interest Rate For First Time In Over Two Years To 13%

According to him, it was the right option considering economic realities.

CBN Governor, Ifeanyi Emefiele, speaks during the bank’s 286th MPC meeting in Lagos on July 19, 2022.

 

“The committee resolved that the most rational policy option would be to further strengthen its tightening stance in order to effectively curtail the unabated rising trend of inflation,” Emefiele said.

“Members were conscious of the fact that output growth remained fragile. However, not curtailing inflation now could erode the monetary gains achieved in improving consumer purchasing power and thus worsen the poverty level for the vulnerable populace.”

The monetary policy rate (MPR) is the main interest rate in a country or economy on which all other interest rates in that economy are based.

While the apex bank increased the MPR rate, it, however, retained other parameters.

The asymmetric corridor remains +100 and -700 basis points around the MPR, and the well as Cash Reserved Ratio (CRR) at 27 percent.

He added, “Committee thus vote unanimously to raise the Monetary Policy Rate (MPR). One member voted to increase the MPR by 150 basis points, six members by 100 basis points, one member by 75 basis points and three members by 50 basis points.

“Consequently, Committee resolved to increase the MPR by 100 basis points from 13 percent to 14 percent. In summary, MPC voted as follows:

“Increase MPR to 14% from 13, retain the Asymmetric Corridor at +100 and -700 basis points around the MPR, retain the CRR at 27.5 percent and retain liquidity ratio at 30 percent.”

Tuesday’s rate hike marks the second time, the MPC will raise the interest rate in two months.

The MPC increased the rate from 11.5 percent to 13 percent on May 24.

Meanwhile, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, is worried about the implication of the new interest rate for the economy.

Although the MPC expects the step to tame inflation, Dr Yusuf, thinks the opposite may be the case.

“I am concerned about MPR hike because it will burden manufacturers and investors; factors driving inflation in Nigeria different from factors driving inflation in other countries CBN is comparing Nigeria with,” he said during an appearance on Channels Television’s live show on the MPC decision.

US Increases Interest Rate By 50 Points, Biggest Hike In Two Decades

CBN Plans $100m Sale At Special Auction
US dollar notes.

 

The Federal Reserve on Wednesday made its biggest rate hike since 2000 with a half percentage point increase meant to crush soaring inflation in the United States.

After a quarter-point hike in March, the US central bank’s policy-setting Federal Open Market Committee (FOMC) pushed the rate above 0.75 percent as it works to cool the economy while noting more increases “will be appropriate.”

That will raise the costs of all types of borrowing, from mortgages to credit cards to car loans, cooling demand and business activity.

Inflation has become an overriding concern after the world’s largest economy saw annual consumer prices jump 8.5 percent over the 12 months to March — the biggest jump since December 1981.

READ ALSO: Indonesia Suspends All Exports Of Palm Oil

Policymakers continue to believe inflation will gradually return to the Fed’s two-percent target as it raises borrowing costs, but in a statement following the conclusion of its two-day meeting, the FOMC said it will be “highly attentive to inflation risks.”

The Fed’s goal is to engineer a “soft landing” in which it reins in inflation while avoiding a contraction in economic activity.

But with China’s pandemic lockdowns worsening global supply snarls and the war in Ukraine pushing commodity prices higher, analysts fear factors beyond the central bank’s control could undermine that goal, and perhaps plunge the US economy into a recession.

The committee noted the “highly uncertain” impact of Russia’s invasion of Ukraine and Western sanctions on Moscow, which are “creating additional upward pressure on inflation and are likely to weigh on economic activity.”

In addition, Covid lockdowns in China “are likely to exacerbate supply chain disruptions,” the statement said.

Offloading bonds

Though it contracted in the first quarter, Fed officials have said they view the economy as healthy enough to withstand higher rates, and the FOMC statement noted robust job gains and strong household and business spending.

However, central bankers cannot engineer a solution for the worker shortages that have challenged businesses and raised fears of a wage-price spiral, when employees demand higher salaries and fuel price increases.

On Wednesday, payroll services firm ADP reported private employers added a weaker-than-expected 247,000 workers in April, a sign that companies are struggling to find available labor, while government data released Tuesday showed there are nearly two openings for every job seeker.

The FOMC also said it would begin reducing its massive bond holdings starting June 1, beginning at the pace of $47.5 billion a month, and then doubling after three months.

The decision was widely expected, and many economists believe the FOMC will again hike rates by a half-point in June, though Ian Shepherdson of Pantheon Economics said, “it’s not a done deal,” and it’s even more difficult to say what might happen later in the year.

“We think all bets are off, given the likelihood of a steep, sustained drop in inflation, a clear softening in manufacturing, and a meltdown in housing market activity,” he wrote in an analysis of the meeting.

AFP

CBN Retains Interest Rate At 12.5%

Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, speaks to the press about the Monetary Policy Committee meeting of June 20, 2020

 

The Monetary Policy Committee of the Central Bank of Nigeria has retained the monetary policy rate at 12.5 per cent.

Governor of the Central Bank, Mr Godwin Emefiele announced this at the end of the MPC’s meeting on Monday.

Emefiele explained that other parameters were held constant, leaving the CRR at 27.5% and the liquidity ratio at 30%.

He added that the move to tighten will contradict the initiative of expansion of affordable credit to the real sector while increasing MPR at the stage will be counter-intuitive and will result in upward pressure on market rates and cost of production and a further cut will not be realistic

The CBN Governor stated that the earlier loosening to 12.5% in May is yielding positive impact as credit growth increased significantly in the economy and more time needs to be given for the impact to be felt further.

According to him, the nation’s Gross Domestic Product (GDP) grew in the first quarter of 2020.

“Available data from the National Bureau of Statistics showed that real Growth Domestic Product (GDP) grew marginally by 1.87 per cent in the first quarter of 2020 compared with the 2.25 per cent and 2.10 per cent in the proceeding and corresponding quarters of 2019,” he said.

Although the CBN Governor noted that there was a decline in output growth, he, however, attributed the decline to the COVID-19 pandemic.

“The performance was largely driven by 5.06 per cent growth in the oil sector and 1.55 growths in the non-oil sector. The decline in output growth in the first quarter was largely attributed to the decline in the oil prices and the shock from the COVID-19 pandemic.

“The Committee observed the gradual but persistent decline in the manufacturing and non-Manufacturing Purchasing Indices below the benchmarks. 10 members of the committee were in attendance,” he said.

Eight members of the committee voted in favour of holding the MPR, while two members wanted it reduced.

In addition to the MPR, the Cash Reserve Ratio (CRR) was retained at 27.5 per cent, liquidity ratio at 30 per cent, while the Asymmetric Corridor was retained at +200/-500 basis points.

 

Sri Lanka Slashes Key Interest Rates To Aid Virus-Hit Economy

Sri Lanka
File Photo

 

Sri Lanka’s central bank on Thursday cut interest rates for the fifth time this year in a new bid to breathe life into the coronavirus-stricken economy.

The Central Bank of Sri Lanka monetary board reduced its lending rate by 100 basis points to 5.5 percent. The deposit rate was cut by the same amount to 4.5 percent.

A bank statement said the board wanted to “aggressively enhance lending to productive sectors of the economy, which would reinforce support to COVID-19 hit businesses as well as to the broader economy”.

Sri Lanka’s economy has been slumbering since last year’s Easter Sunday suicide bombings by militant Islamists which badly hit tourism.

Sri Lanka’s economic growth slowed to 2.3 percent last year compared to 3.3 percent in 2018.

The government imposed a nationwide coronavirus lockdown on March 20 which lasted until last month and that has extended the damage to the tourism industry.

The International Monetary Fund in April predicted the economy would contract by 0.5 percent in 2020.

Faced with a serious foreign exchange crisis, the country has slapped an indefinite ban on non-essential imports, including vehicles.

The bank said this had helped stabilise the local currency which hit record lows in April prompting the government to ask public employees to donate their May salary to the state.

AFP

Bank of Japan Introduces Negative Interest Rate  

Bank of JapanFor the first time in its history, the Bank of Japan has introduced a negative interest rate.

The benchmark rate of -0.1% means that commercial banks will be charged by the central bank for some deposits.

It hopes this will be a disincentive to banks to save and prompt them to lend in another attempt to counter the continuing economic slump in the world’s third-largest economy.

It is a move that has been on the cards for Japan’s stagnating economy for well over 10 years.

The decision to go negative came after a narrow 5 to 4 vote at the Bank of Japan’s first meeting of the year on Friday.

According to the central bank, it will cut interest rates further into negative territory if need be for as long as it helps to achieve an inflation target of 2%.

CBN Cuts Interest Rate

CBNNigeria’s Central Bank on Tuesday cut policy interest rate for the first time in almost four years.

At the end of its two-day rate setting meeting, the CBN Chief, Godwin Emefiele announced a 200 points cut to 11% in headline interest rate from 13% previously.

The financial regulator also shaves-off the Cash Reserve Ratio (CRR) sharply from 25% to 20%, the deepest cut in the harmonised rate following a smaller easing done by the CBN last September.

The decision to cut both the policy rate and the harmonised cash reserve ratio, the CBN Governor said, was to engineer growth by increasing the flow of lending to critical sectors of the economy like agriculture, solid minerals, critical social infrastructure and manufacturing.

 

Government Needs To Establish Credit Bureau – Nweze

nwezeAn Economist, Austin Nweze, has urged the Federal Government to establish a credit bureau to investigate bank debtors.

Mr Nweze, on Channels Television’s Sunrise Daily, said that the country needs a structure beyond the conventional banks but like the venture capital firms that can take up the risks instead of the banks directly.

Talking about the process of creating debts, the Economist said that Nigerian banks are to be blamed for defaults because from the beginning of a transaction, they make it difficult for the lenders to pay back.

“Agreed that the CBN and NPC have the monetary rate, in addition to that, there is also cost that NDIC would also take.

“When they calculate the rate by one or two per cent, cost of management fee and the interest rate moves from 13 per cent to 25 per cent and that is how the banks make profit.”

The Economist stressed that the Nigerian economy would not grow if it keeps pushing monies meant for businesses to the bank.

“Government is the biggest debtor. If government could pay off the domestic dept they owe, it has a way of influencing the economy; the bank will have money, businesses can expand, interest rate can reduce,” he said.

Mr Nweze further said that Government should make a policy that would encourage local industry and manufacturing.

He added, “It is the government policy that makes it easier for people to import than to manufacture.”

 

Devalued Naira: Expect High Impact On Businesses, Job Creation – Nweze

Austin NwezeA professor at the Pan Atlantic University, Austin Nweze, has asked citizens to brace up for the impact of the decision taken by the Central Bank of Nigeria to devaluate the naira and increase interest rate, noting that this would affect businesses and ultimately, job creation.

While shedding light on the implications of the CBN’s action, Nweze stressed that business owners should expect to pay up to 30 percent interest rates if they obtain loans from the banks and since entrepreneurs are the major job creators in any thriving economy, it will discourage them from expanding their ventures. Hence, unemployment rate will not reduce.

Asides from the impediment to business growth, citizens should also expect high cost of goods and services because of the structure of the economy, Nwaeze said, noting that “Nigeria’s economy is import dependent”.

“The domestic production is below 4 percent as manufacturing contributes less than four percent to the GDP”.

He also warned that an increase in fuel price should be expected in 2015, insisting that the proposed austerity measures to combat the slump in global oil price should start with the government.

What he described as the ‘unholy trinity’ including the interest, foreign exchange and inflation rates would be affected as well because “as you’re fighting inflation, the interest rate has a way of influencing the whole economy.

He noted that there had always been the danger of depending on oil as the nation’s major stream of income, adding that “I thought that we would have learned from the past experience because this is not the first time it has happened.

“When Soludo was CBN governor, this kind of thing happened. There was not enough dollar to finance the budget. He had to devalue.”

This led to some people becoming naira billionaires by reason of exchanging dollars they had previously stacked up, Nweze said, adding that the same thing has happened again.

He insisted that it was time for Nigeria to restructure its economy away from oil, noting that as at 2008, the United Arab Emirates had only five percent contribution from the oil sector to the GDP but Nigeria has over 90 percent.

On the CBN’s action to counter the effects by devaluing the naira and raising interest rates, Nweze supported critics who have said it is not a good mix.

He stressed that a 13 percent interest rate will have severe impact on businesses and this would in turn affect job creation on the part of entrepreneurs.

Commenting on the CBN’s explanation that the action was taken to curb frivolous demands of the dollar, Nweze noted that the demand for dollar would be on the increase by high class citizens who would want to be able to leave the country in case of any crisis, as the election year draws near.

“Most rick men who don’t have confidence in this country are staking up dollars”, he said.

MPR At 12% Will Make It Difficult For Nig’s Private Sector To Create Jobs

Financial analyst; Wole Oluwo, has decried the retention of the nation’s Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), at 12 percent saying that a trade off might soon occur from the failure of the regulatory authorities to balance the achievement in other economic indicators such as the exchange rate and foreign reserve with a high interest rate.

Mr Oluwo on Channels Television’s Business Morning, warned that no matter the growth rate of the country, even if Nigeria’s economy is growing at 10 percent, the ordinary man can never feel the impact of such growth except if his business is able to access money via a lower interest rate.

It will also help reduce cost, he added.

He warned of an impending trade-off that can spike the inflation rate which the CBN is closely guiding to be retained at a single digit.

Oluwo ask why the CBN would rather have an economy where inflation rate is at a single digit but the average business owner cannot get a loan at single digit.

 

Naira firms as banks sell dollars

The naira firmed against the U.S. dollar on the interbank on Wednesday, with large inflows from foreign investors buying short-tenored bonds and as banks sell the greenback to stay within a stipulated open position for them.

The unit firmed to closed at N157.90 to the dollar, recovering from an intraday low of N158.40, compared with Friday’s close of N158.10.

“Dollar inflow from offshore investors buying treasury bills helped lift the naira today,” one dealer told Reuters.

The Central Bank of Nigeria sold N71 billion ($445 million) worth of treasury bills on Wednesday, with maturities ranging from 3-month to 6-month. Dealers said foreign funds were active but didn’t give specific figures.

At the central bank’s bi-weekly foreign exchange auction, the bank sold $120 million at N155.80 to the dollar on Wednesday, compared with $200 million it sold at the last auction.

Dealers expect the currency to trade within the current band of N157.90-N158.30 for the rest of the week but could strengthen further as month-end dollar flows from oil firms trickle in.

Last month, the central bank raised the cash reserve requirement for lenders to 12 percent from 8 percent, and reduced net open positions to 1 percent from 3 percent, to curb the money supply and support the naira.

CBN leaves interest rate at 12 percent, moves to support naira

The Central Bank of Nigeria (CBN) left its benchmark interest rate on hold at 12 percent on Tuesday as expected but took measures to tighten liquidity to support the weakening local naira currency.

The CBN’s Monetary Policy Committee (MPC) chose to raise banks’ cash reserve requirement to 12 percent from 8 percent and reduce net open foreign exchange positions to one percent from three percent to support the naira.

Eleven analysts polled by Reuters last week had expected the MPC to keep its benchmark rate unchanged for a fifth meeting running.

The naira has been hit by a fall in the price of oil, the country’s main export, and global risk aversion and has weakened by almost 3 percent against the dollar since April. The naira closed at N160.7 against the U.S. dollar on Tuesday, outside the CBN’s N150-N160 target trading band.
Currency weakness is aggravating inflation as the country imports 80 percent of what it consumes.

Consumer inflation rose to 12.9 percent year-on-year in June, up from 12.7 percent in May. The CBN expects it to peak around 14 percent later this year.

The CBN Governor Lamido Sanusi said on Tuesday there were serious risks to growth in Nigeria due to weaker global economic growth, lower oil output, a worsening security environment and high government spending.

Mr Sanusi also said Nigeria was unprepared for a potential oil price slump because government was spending the country’s savings, which are stored in the excess crude account.

Nigeria’s economy grew 6.17 percent in the first quarter this year, down from 7.68 percent in the fourth quarter last year. The economy is projected to grow at 6.5 percent this year, down from 7.4 percent in 2011.

The CBN has kept rates on hold since November, after six successive hikes last year, including a 275 basis point rise in October to 12 percent, to ward off speculation on the naira. The naira fell 4.5 percent against the dollar last year.

REUTERS