Private sector groans as CBN raises interest rate to 27.5%

Nigerians may not expect any relief until next year, Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has said even as the Monetary Policy Committee raised the interest rate by another 0.25 per cent at the close of its meeting yesterday.

Speaking at the end of the 298th meeting of its Monetary Policy Committee (MPC) of the CBN in Abuja, Cardoso said the MPC members were unanimous in raising the rate by an additional 25 basis points from 27.25 per cent to 27.5 per cent retained the cash reserve ratio (CRR) at 50 per cent for deposit money banks and 16 per cent for merchant banks.

The Committee also retained the liquidity ratio at 30 per cent and asymmetric corridor at +500/-100 basis points around the monetary policy rate (MPR).

Cardoso said: “People should know that there is a timeline between when a policy is introduced and when the impacts will be felt. Most times, the timeline is anything from six months to one year. For us, we believe that the time to begin to expect results of the tightening will be anything from the first quarter of next year. You can do the maths of when we started tightening.”

With this statement, Cardoso has indicated that the tightening may complete its full circle in January next year when the 299th MPC meeting will take place.

The next MPC is slated for January 25 and 26, 2025.

He also said the CBN is working with some of the relevant Federal Government agencies to ensure that those structural impediments are handled appropriately, but some of these disruptions and infrastructural gaps.

Cardoso insisted that what Nigeria is experiencing presently is what most countries around the world are passing through, saying the “road of travel is similar. These things take time. You must stay the course to reap the benefit. The feedback is that Nigeria is on the right track.”

Though the foreign reserve has gone up in recent months, Cardoso argued that the rising reserve is not only a buffer for unanticipated shocks.

His words: “The reserves are not there to be frittered away but to serve as a buffer to defend the economy when it is necessary.”

The CBN governor dashed the hope of a reprieve for the ailing naira, saying, “I want to make a distinction between the value of a currency and the stability of a currency. These are two separate things, even though they are closely related. For us, we always talk about the stability of the currency and the stability of prices. We will not get tired of talking about it because that is the reason the Central Bank of Nigeria exists. The CBN is here to provide stability. We do all we can with all the multiple tools available to ensure stability. If you measure stability between June and now, you will find that it has been stable. The currency has been stable. The value of the currency is not determined by one entity. Yes, the CBN is tasked with managing volatility and how the currency pans out. In doing this, no one can get away from the fundamentals of an economy in determining the strength of the currency.”

He mentioned demand and supply, balance of payments, fiscal deficit, and debt as critical in the determination of the value of a currency.

The CBN helmsman also faulted Nigerians’ appetite for foreign goods. He submitted that unbridled importation played a major role in the collapse of the naira.

His argument: “I think this is an excellent opportunity for us as Nigerians to look at our economy and decide to buy more local goods and shun importation. None of these is too small to shore up the value of the naira.”

While Cardoso lauded the Federal Government for bringing insecurity under some measurable control in the northeast linking to the reduction in the prices of food in the market, feelers from markets around the country indicate that prices are not abating.

He said: “The MPC, however, noted the moderation in the prices of farm produce and commended the efforts of the Federal Government in driving increased productivity in the agricultural sector. The recovery of output growth was sustained, with Real GDP (year-on-year) growing by 3.46 per cent in the third quarter of 2024 compared with 3.19 and 2.54 per cent in the preceding and corresponding periods, respectively.

However, checks by The Guardian revealed that a 50kg bag of rice ranges between N87,000 -N114,000 depending on the brand, while beans range from N140,000 – 160,000 for a 50kg bag, Maize owing to harvest is between N38,500 -N40,000 per 50kg bag.

Sorghum and Millet are currently being harvested, the old stock however is about N45,000 per 50kg bag.
On wheat, prices of confectioneries such as bread remain fixed at about N2000-N2,500 for a family-size bread.

On the implication of the 25-basis points addition to the interest rate, a banker, Dr Yunana Bature, said the rise is detrimental to the real sector.

Dr Bature was to acknowledge the step could be a signal to the fiscal authorities on the need to be financially disciplined.

“This is still detrimental to the real sector but a little succour. In anticipation to improve fiscal discipline may be a stimulant to businessmen.”

An investment banker, Tolulope Alayande observed that adding to the rate will not help the economy in any significant way.

He stated: “I don’t see the effect of this raise. To tame inflation? To what extent? Will this help the real sector? Will this spur the banks to lend to the real sector that can boost employment generation and production?

“I think the government ought to be looking at how to encourage the business community to remain in business by providing the necessary support. I don’t think this will be of any help. Nigerians will have a bleak Christmas and New Year celebrations no doubt.”