The Central Bank of Nigeria (CBN) said it was intervening in the foreign exchange market in a bid to normalise volatility in the market and keep the market at a fairly stable level it feels it should be.
The apex bank also said it was looking at every tool in the box that will help reduce liquidity in the financial system and have positive impact on reining in inflation.
This is as the Monetary Policy Committee of the CBN on Tuesday increased official interest rate by 25 basis points as earlier predicted by this newspaper. The MPC at the end of its meeting announced the increase of Monetary Policy Rate from 18.5 per cent to 18.75 per cent as a response to Nigeria’s rising headline inflation currently at 22.76 per cent.
11 members of the MPC in attendance at the meeting also voted to adjust the asymmetric corridor from +100 -700 basis points to +100/-300 basis points around the MPR. The bank retained the retained the CRR at 32.5 per cent; and retained the liquidity ratio at 30 per cent.
Acting governor of the CBN Folashodun Shonubi made the disclosure yesterday while addressing journalists at the end of the MPC meeting in Abuja.
He admitted the reality that there is pent-up demand which he said current supply is not sufficient for. He told journalists that as the CBN ease and satisfy the pent-up demand, Nigerians will begin to see a more efficient market that runs effectively.
“The role of the central bank is to intervene and keep the market at a fairly stable level. We have our views as to what that level is. And as the market continues to oscillate around that level, if there is a need for us to intervene either by buying or selling, that’s the role of the central bank.
“We have started intervening. And we’ve been doing it for a while. And we will continue to intervene to bring the market to the levels that we believe it should be. Right now, in the short time, these volatile times are expected, but we expect them to moderate sooner than later,” Mr. Shonubi said.
By that, Shonubi said the central bank is not trying to unify Nigeria’s multiple rates.
“We believe that we need to encourage the market to be more efficient and more effective. And that’s a bit of time. Some of the volatility you’ve seen has been driven by that same factor; the market trying to find its level,” he added.
MPC said the continued uptick in inflation (month on month), driven by increase in both the food and core components of the consumer price index currently at 22.76 per cent remained a key challenge.
The members also expressed concerns that the recent policy decisions around subsidy removal, exchange rate liberalisation and disbursement of palliatives, would have pass-through effects to inflation.
Members therefore called for decisive measures, by the Bank, to address the likely liquidity surfeit from these developments, including using appropriate monetary policy instruments.
The committee expressed the view that, key policy mechanisms to shield the Nigerian economy from persisting global shocks and other emerging domestic shocks, are urgently required for the economy to continue to post positive growth.
Considering the option to hold, the Committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth.
On price development, the Committee noted the continued uptick in inflationary pressure, as headline inflation (year-on-year) rose by 38 basis points to 22.79 per cent in June 2023 from 22.41 per cent in the previous month.
Meanwhile, professor of capital market at Nasarawa State University, Uche Uwaleke said the tepid increase by just 25 basis points to 18.75 per cent is an acknowledgement of the fact that there’s very little the CBN can do to tame supply side-induced inflation via the policy rate.
On the other hand, Uwaleke said a decision to maintain policy parameters could be misconstrued as insensitivity on the part of the CBN with respect to rising inflation.
“So, it does seem that the MPC decision is an attempt to thread a middle-of-the road path,” Prof. Uwaleke stated.
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