Folashodun Shonubi, acting Governor of the Central Bank of Nigeria, has stated that the bank will address the demand pressure on the country’s currency rate as the naira continues to fall against the dollar. He made the pledge while fielding journalists’ queries during the two-day Monetary Policy Committee meeting, which concluded on Tuesday in Abuja.
On Tuesday, the naira plummeted from 820/$ to 870/$ in one week on the parallel market. Since the country’s currency rates were unified, the naira has continued to fall, despite increased inflation, rising gasoline expenses, and other issues.
Shonubi said, “The market needs to find its level. There is pent-up demand which the market cannot cater to. Once we clear this demand, the volatility will normalise. We have started intervening, and we would continue to intervene until the market gets to our level.”
Announcing the outcome of the MPC meeting, the acting CBN governor said the majority of the members voted to raise the Monetary Policy Rate.
He said, “Six members voted to raise the MPR: Four members by 25 basis points and two members by 50 basis points. Five members voted to hold the MPR constant. All members voted to narrow the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.
“In summary, the MPC voted to raise the MPR by 25 basis points, from 18.50 to 18.75 per cent, adjust the asymmetric corridor to +100/-300 basis points around the MPR; retain the CRR at 32.5 per cent and retain the Liquidity Ratio at 30 per cent.”
Following the prognosis for the domestic economy, he stated that members believed the Committee had only two policy options: maintain or raise the policy rate to offset the mild increase in headline inflation.
He said that, in considering the option to hold, the Committee examined the impact of ongoing inflationary pressures on several macroeconomic factors, emphasizing the possible dampening effect on production growth.
He stated that members unanimously agreed that the last set of rate rises had significantly slowed the pace of price increases. He also mentioned that the prospect of gradually raising the policy rate was a viable option.
He went on to say that this was based on the anticipated liquidity infusions into the economy from the recent policy developments and the likely impact on inflation. The acting CBN governor said the Committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which would ultimately lead to the recovery of output growth.
Earlier, the Director General of Nigeria Employers’ Consultative Association, Mr Wale Oyerinde, said the increased Monetary Policy Rate implied higher borrowing.
He said, “Furthermore, the increased MPR implies higher borrowing rates, which would negatively affect companies and manufacturers that borrow capital for their survival. If unchecked, it could also lead to another form of economic quagmire as higher rates slow down productive activities.”
Also, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, said the hike was expected.
He said, “The hike in Monetary Policy Rate did not come as a surprise because of the surging inflation and the current pressure on the exchange rate. These are macroeconomic conditions that the CBN would not ignore. There are concerns about the real interest rate, which is currently in negative territory. There are also worries about the signalling effect of the MPC decision.”
He, however, noted that it would hurt investors and that increasing the MPR would likely have no major impact on inflation.
