CBN Gov, Cardoso Reveal Problems Behind Nigeria’s Economic

Addressing growing public concern over Nigeria’s economic difficulties, Central Bank of Nigeria (CBN) Governor Yemi Cardoso has identified insufficient diversification, excess liquidity, and global economic pressures as key factors contributing to the nation’s economic woes.

During a media briefing marking the conclusion of the 296th meeting of the Monetary Policy Committee (MPC) in Abuja, Cardoso explained the committee’s decision to raise interest rates by 50 basis points, from 26.25% to 26.75%, to curb inflation.

The CBN also adjusted the asymmetric corridor from +100/-300 to +500/-100 basis points, set the Cash Reserve Ratio (CRR) for deposit money banks at 45% and for merchant banks at 14%, while maintaining the Liquidity Ratio at 30%.

Cardoso justified these measures by acknowledging the adverse effects of rising prices on households and businesses across Nigeria. He reiterated the MPC’s commitment to price stability, expressing optimism that the new monetary policy measures, along with fiscal interventions targeting food inflation, would stabilize prices in the near future.

He highlighted the persistent challenge of food inflation, exacerbated by insecurity in key agricultural areas and high transportation costs, emphasizing the urgent need to boost food supply within Nigeria. “While monetary policy has been moderating aggregate demand, rising food and energy costs continue to put upward pressure on prices. Insecurity in food-producing regions and high transportation costs are contributing to this trend. Addressing these challenges is crucial for sustainable price stability,” Cardoso noted.

The MPC also pointed out the role of middlemen who finance smallholder farmers, hoard farm produce, and export it to neighboring countries, stressing the need to curb such activities to address the food supply deficit in the Nigerian market.

The MPC resolved to maintain collaboration with fiscal authorities to ensure inflationary pressures are subdued.

Reacting to the MPC’s decisions, Nigeria’s first professor of capital markets, Prof. Uche Uwaleke, commented: “Given the 750 basis points increase between February and May this year, I expected a minimum of 50bps or a maximum of 100bps increase in July. The choice of the lower end suggests a possible halt in rate hikes at their next meeting in September.”

However, Uwaleke expressed concern over the adjustment to the asymmetric corridor around the MPR. “The MPC communique did not explain the rationale for increasing the SLR from +100 to +500 and the SDR from -300 to -100. This change means that with an MPR of 26.75%, banks will now obtain loans from the CBN at 31.75% while being remunerated for excess deposits at 25.75%. This will further tighten liquidity in the banking system and increase the cost of credit, adversely affecting output and the equities market.”

Uwaleke also noted that recent MPC communiques have not detailed how members voted, information he considers useful even before personal statements are published. He concluded, “In tackling Nigeria’s high inflation, driven largely by non-monetary factors, fiscal measures are crucial.”