CBN raises interest rate by 400 basis points to 22.75%

.As Bill to amend apex bank’s Act scales second reading in Senate

. Govt needs monetary, fiscal policies to tackle inflation -Expert

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday increased the Monetary Policy Rate (MPR) by 400 basis points to 22.75 per cent from 18.75 per cent.

The CBN Governor, Yemi Cardoso, who chairs the MPC, announced the committee’s decisions on Tuesday after the meeting.

Cardoso said that the asymmetric corridor around the MPR was adjusted to +100 – 700 basis points from + 100 -300 basis points.

“The Cash Reserve Ratio (CRR) was increased from 32.5 per cent to 45 per cent, while the Liquidity Ratio was retained at 30 per cent.

“The committee decisions were centred around the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.

“Members are concerned about the persistent rise in the level of inflation and emphasised the committee’s commitment to reverse the trend as the balance of risk leans towards rising inflation.

” The committee, however, acknowledged the tradeoff between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in environment of low and stable inflation,” he said.

Meanwhile, the Senate at plenary on Tuesday passed for second reading, a bill to amend the Central Bank of Nigeria (CBN) Act 2007.

The bill was sponsored by 41 members of the Committee on Banking, Insurance and other Financial Institutions.

Leading debate on the general principles of the bill, Chairman of the Committee, Sen. Adetokunbo Abiru, (APC-Lagos) said the bill was read the first time on January 30th.

He said the mandate of CBN was derived from the 1958 Act of Parliament as amended in 1991, 1993, 1997, 1998 and 2007.

Abiru said the current act of 2007, which empowers the bank with the overall control and administration of the monetary and financial sector policies of the federal government, has not been amended for over 16 years, despite growing changes to the bank’s balance sheet.

He said there were also challenges in monetary policy implementation occasioned by fiscal dominance and the rapidly changing financial landscape.

Abiru said the proposed amendments were therefore aimed at strengthening the bank to discharge its primary mandate of maintaining monetary and price stability in support government’s economic growth objectives.

He said the amendment was designed to align its governance mechanisms with global best practices.

According to him, the current act made no provision for coordination of monetary and fiscal policies which accounted for the reason monetary policies of the bank often diverge from fiscal policies to the detriment of the economy.

He said the bill introduces for the purpose of co-ordination of the monetary, fiscal and trade policies, a Coordinating Committee for Monetary and Fiscal Policies.

He listed the functions of the committee to include:

“Setting internally consistent targets of monetary and fiscal policies that are conducive to controlling inflation and promoting financial conditions for sustainable economic growth.

“Applying caps to any fiscal deficit at a level that can be financed without having recourse to direct monetary financing from the Bank, that is Ways and Means.”

He said membership of the proposed committee shall consist of, Minister of Finance who shall be the Chairman, Minister of Budget and Economic Planning, Minister of Industry Trade and Investment, Minister of Agriculture Governor of the Central Bank of Nigeria.

Others, according to Abiru are the Chief Economic Adviser to the President, the Director General of the Securities and Exchange Commission.

The senator said the bill also proposes to amend the provision to provide a single non-renewal term of six years for the Governor and the Deputy Governors.

This, he said was the practice adopted by many independent Banks such as the United States Federal Reserve and the European Central Bank, where their Chief Executive Officers serve only one non-renewable term.

According to him, empirical evidence showed that a single term for the members of the executive and board members of central banks helps to reduce political influence on monetary policy decisions and the time inconsistency problem associated with non-independent central banks.

“The bill proposes that where a vacancy is created by the death or resignation of a CBN Governor or Deputy Governor, the President can appoint an acting Governor in the interim pending the appointment of a substantive Governor or Deputy Governor.

“Where a substantive appointment is made, such appointment will be for a fresh term rather than serving the tenure of the previous Governor or Deputy Governor.”

He said the bill proposes the establishment of the office of a Chief Compliance Officer for the Bank, of the rank of a Deputy Governor, who reports directly to the Board and may occasionally be summoned to appear before the relevant committee of the National Assembly.

This, he said, was to help to strengthen the internal control systems put in place by the management of the Bank.

He said the primary role of Chief Compliance Officer was to ensure that the bank complies with all the public accountability and transparency requirements contained in extant laws under which the bank operates.

The bill was referred to Committee on Banking Insurance and other Financial Institutions for further legislative inputs and to revert back to plenary in two weeks by Deputy President of Senate Sen. Barau Jibrin (APC-Kano).

Meanwhile, a financial expert, Dr Samuel Nzekwe, has said the increase in the Monetary Policy Rate (MPR) to 22.75 per cent by the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) may not likely tackle the inflationary pressure.

Nzekwe, in an interview with the News Agency of Nigeria (NAN), on Tuesday in Ota, Ogun, said that inflationary pressure in the country could not only be curbed by monetary policies but with fiscal efforts.

According to him, the inflationary situation is an imported type because it is due to external factors.

He said that the hike in MPR would result in higher costs of funds eith the banking sstem and therefore affect the cost of doing business in the country.

The former President of the Association of National Accountants of Nigeria (ANAN), however, said that the increase could discourage individuals and businesses from borrowing due to increased interest rates.

Nzekwe said also said this might affect the real sector, the engine growth of any economy.

He attributed the inflationary trends in the country to the disparity between the Naira and foreign currencies, particularly the strengthening of the dollar.

Nzekwe highlighted the impact of importing most of the goods consumed domestically as a contributing factor to the rising inflation rate.

The financial expert called for more measures by the government to reduce imports and curb the demand for foreign currencies, particularly the dollar, to alleviate the pressure on Naira’s value.

On the challenges, Nzekwe urged the government to focus on creating a conducive environment for the productive sector to enhance local production and boost exports to generate foreign exchange.

He emphasised the importance of improving security measures to encourage farmers to return to agriculture, thereby increasing food production.

He called for measures to reduce imports and curb the demand for foreign currencies, particularly the dollar, in order to alleviate the pressure on Naira’s value.

NAN reports that MPR was increased by 400 basis points to 22.75 per cent from 18.75 per cent.

The CBN Governor, Yemi Cardoso, who chairs the MPC, said that the asymmetric corridor around the MPR was adjusted to +100 – 700 basis points from + 100 -300 basis points.

“The Cash Reserve Ratio (CRR) was increased from 32.5 per cent to 45 per cent, while the Liquidity Ratio was retained at 30 per cent.

“The committee decisions is centred around the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.

“Members are concerned about the persistent rise in the level of inflation and emphasized the committee’s commitment to reverse the trend as the balance of risk leans towards rising inflation.

“The committee, however, acknowledged the tradeoff between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in environment of low and stable inflation,” he said.”