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Experts project rates hike as CBN holds MPC meeting

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As the Central Bank of Nigeria (CBN) holds its Monetary Policy Committee (MPC) meeting on Monday, some stakeholders project a hike in policy rates.

This is against the backdrop of global monetary policy trend, which has seen the American Central Bank (The Fed), and the Bank of England increasing Monetary Policy Rates (MPR).

The MPR is the benchmark interest rate that guides all other rates in the financial market.

The MPC had raised the MPR by 100 basis points from 13 per cent to 14 per cent in its last meeting in July.

The July increase represented the second consecutive hike in the MPR within two months.

The committee had in May, and for the first time since September 2020, increased MPR by 150 basis points from 11.5 per cent to 13 per cent.

According to Prof. Umhe Uwaleke, an economist, the MPC is likely to increase the MPR again by at least 50 basis points.

Uwaleke, a Professor of Economics from Nasarawa State University, said that his projection was informed by rising inflation rates as well as the trend in the some developed countries.

“Judging from the recent shift in monetary policy stance from accommodative to contractionary in deference to the CBN’s primary mandate of price stability.

“And against the backdrop of rising inflation, the MPC is most likely to increase the MPR by at least 50 basis points.

“Aside inflationary pressure and the need to tame it, the MPC will be considering current global monetary developments such as the hike in policy rates by central banks in developed countries.

“For example, the U.S. Federal Reserve recently increased the benchmark rate by 75 basis points while the Bank of England increased by 50 basis points,” he said.

Uwaleke said that these monetary tightening by central banks of U.S. and the UK continued to trigger capital outflows from Nigeria with negative implications on the exchange rate.

“So, the MPC will equally consider this as justification for increasing MPR,” he said.

The economist, however, urged the MPC to hold the prevailing rates constant as tightening may not tame inflationary trend.

“Be that as it may, if I were a member of the MPC, I would vote for a hold position. In other words, I would advise that the policy rates be held.

“This is because the major drivers of inflation in Nigeria today are cost-push related rather than demand-pull.

“Further policy tightening may not really tame inflationary pressures that are stemming more from high cost of energy and negative impact of insecurity on food output.

“Furthermore, any hike in rate at this time will hurt output growth through higher cost of lending to SMEs.

“In view of the current tepid real GDP growth, I will advise the MPC to maintain the status quo and give more time to the current CBN monetary policy to permeate the economy,” he said.

Dr Tope Fasua, an economist, also urged the MPC to retain the subsisting rates as past rates increase had not tamed inflation.

“Though I expect that they may further raise rates, my advice to the MPC will be that they hold rates.

“We have raised rates by 250 basis points in the last two meetings but inflation has surged further.

“This means that our own inflation is not tightly linked with interest rates and may recede in its own time.

“Ours is a bit of a carryover from the COVID-19 era of production shut down and imported inflation because our economy is dependent on foreign ones battling inflation presently,”’ he said.

“Further policy tightening may not really tame inflationary pressures that are stemming more from high cost of energy and negative impact of insecurity on food output.

“Furthermore, any hike in rate at this time will hurt output growth through higher cost of lending to SMEs.

“In view of the current tepid real GDP growth, I will advise the MPC to maintain the status quo and give more time to the current CBN monetary policy to permeate the economy,” he said.

Dr Tope Fasua, an economist, also urged the MPC to retain the subsisting rates as past rates increase had not tamed inflation.

“Though I expect that they may further raise rates, my advice to the MPC will be that they hold rates.

“We have raised rates by 250 basis points in the last two meetings but inflation has surged further.

“This means that our own inflation is not tightly linked with interest rates and may recede in its own time.

“Ours is a bit of a carryover from the COVID-19 era of production shut down and imported inflation because our economy is dependent on foreign ones battling inflation presently,” he said.

Money market

LCCI advocates discipline, export to sustain Naira appreciation

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LCCI advocates discipline, export to sustain Naira appreciationThe Lagos Chamber of Commerce and Industry (LCCI) has emphasised the importance of maintaining discipline in the foreign exchange market to sustain the steady appreciation of the Naira.

The President and Chairman of the Council of LCCI, Mr Gabriel Idahosa, made the call in an interview with newsmen on Wednesday in Lagos.

Idahosa praised the efforts of the Central Bank of Nigeria in imposing discipline, attributing the recent Naira appreciation to curbing speculative activities.

“On the monetary side, the CBN is doing it. The primary efforts should continue to impose discipline in the foreign currency market.

“The abuses in the foreign currency market were prevalent and most of the fall in the value of the Naira in the last six months is not because there was any sudden calamity in the Nigerian economy.

“It was primarily because of very reckless speculations, that people were just speculating in the dollar, they had nothing to export, nothing to import, they were just buying the dollar for speculative reasons.

“And once the Central Bank started to impose discipline in the foreign currency market, we saw the value of the Naira rising very quickly by stopping speculation,” he said.

According to him, the strategies of the Central Bank, now, are designed to achieve a sustained discipline in the foreign currency market.

Idahosa highlighted the need to continue reducing the number of Bureau de Change operators, stressing that many operated without contributing to international trade.

He applauded the Central Bank’s move to enforce documentation and identification of buyers and sellers at BDCs, aiming to deter reckless speculation and curb illicit financial flows.

On the fiscal side, Idahosa urged President Bola Tinubu to prioritise a nationwide export drive, citing it as the key to bolstering the Naira and providing essential foreign exchange.

He emphasised the importance of fostering a culture of export among Nigerians across all scales of enterprise to reduce reliance on imports and strengthen the country’s economic resilience.

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Foreign reserves decline to $32.29bn

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The foreign reserve has depleted to $32.29 billion, which is a six-year low in the Central Bank’s course to save the naira.

This is the lowest level the reserves have been since September 25, 2017, when it was $32.28 billion.

The country’s foreign reserves declined by 6.2 percent, losing $2.6 billion since March 18, when the naira started its rebound from record-low levels against the dollar to $32.29 billion as of Monday, based on the latest available data from the CBN.

At the beginning of the month, the reserve was at $33.57 billion, then further dipped to $32.6 billion by April 12.

This comes as the CBN has attempted to save the naira through various interventions such as raising interest rates to 24.75 percent and managing foreign exchange trades.

It stepped up its intervention in the FX market with sales at both the official market and to BDC operators who sell dollars on the streets.

The apex bank, which sells $10,000 to each BDC every week, mandated them to only sell at a spread of 1.5 percent, which comes to N1,117 per US dollar.

The rate sold by the BDCs has set a defacto floor for the naira in the black market since the apex bank resumed sales to them in February.

Also, last month the CBN said it had cleared a backlog of $7 billion since the beginning of the year. That was built over the years as the central bank pegged its currency against the dollar, leading to a scarcity of foreign currency that deterred foreign portfolio investment. However, it’s unclear how much dollar debt the CBN retains on its books.

Akpan Ekpo, a professor of economics and public policy, said the CBN’s managed float system in which it is trying to ensure supply and curtail demand is not sustainable in the long term.

He said the CBN needs to be careful with how it depletes the foreign reserves as its main source is oil revenue.

“We need to manufacture non-oil goods and services, export them, and get foreign exchange and not depend on oil income,” he said.

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Money market

CBN expresses commitment to harnessing digital technologies

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The Central Bank of Nigeria says it is committed to harnessing the power of digital technologies to enhance financial inclusion.

CBN Governor, Mr Yemi Cardoso said this on Tuesday in Abuja, during a strategic institutions tour by participants of Senior Executive Course 46 of the National Institute of Policy and Strategic Studies (NIPSS).

Cardoso, who was represented by Dr Bala Bello, Deputy Governor, Corporate Services, said that digital technologies would also boost productivity and create an enabling environment for innovation and entrepreneurship to thrive.

According to him, the apex bank has already deployed robust digital technologies in driving most of its processes towards achieving optimal performance.

He said that NIPSS, as a foremost national policy think-tank, had made invaluable contributions to the socio-political and macroeconomic development of Nigeria.

“We are, therefore, not surprised at the apt and relevant choice of your research theme.

“The CBN and NIPSS have had a long-standing and robust working relationship since the establishment of the institute. This has culminated into positive mutual benefits for the two institutions.

“The CBN, on the one hand, has provided infrastructural support to the institute through construction of an auditorium and a hostel, in addition to the provision of technical support.

“On the other hand, NIPSS has supported the technical capacity of the CBN through the training of some personnel both at senior executive course level and intermediate course cadre,” he said.

The Director-General of NIPSS, Prof. Ayo Omotayo, said that the study visiting would be representing the institute in getting information from operators of the apex bank on the relevance of digital technology to developing jobs for Nigerian youths.

According to Omotayo, a lot of progress has been made globally in using digital systems to run the economy.

“The more of our activities that we can put in digital format, the more we get the opportunity of providing employment access to a whole lot of the 120 million active Nigerians.

“We at NIPSS always knock at the frontiers of knowledge, checking what is going to happen in the immediate future.

“We are working towards a system where we believe that almost every service can be delivered digitally,” he said.

The Acting Director, Monetary Policy Department of the CBN, Dr Lafi Bala Keffi, commended the NIPSS study group for its interest in the apex bank.

She urged the participants to explore the time-tested culture of NIPSS, which is to diagnose national, profer practical solutions and recommend ways of making such solutions realisable.

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