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Central Bank of Nigeria building
The Central Bank of Nigeria has attributed the hike in Monetary Polcy Rate to persistent inflationary pressures, particularly the rise in core inflation driven by escalating energy prices.
The Monetary Policy Committee of the CBN convened on September 23 and 24, 2024, to evaluate recent economic and financial trends, as well as to assess potential risks to Nigeria’s economic outlook.
Out of the 12 members, 11 were present at the meeting.
Key decisions reached by the MPC include the agreement to further tighten monetary policy, with the further decision to increase the Monetary Policy Rate from its previous level to 27.5 per cent.
Other decisions were to retain the asymmetric corridor around the MPR at +500/-100 basis points, and raise the Cash Reserve Ratio for Deposit Money Banks and Merchant Banks and to maintain the liquidity ratio at its current level of 30 per cent.
The CBN has, however, attributed the hike in MPR to persistent inflationary pressures.
“The committee expressed concern that despite recent moderation in headline inflation, core inflation remains high, indicating that inflationary pressures are far from easing”, the apex bank said in a statement on Tuesday.
The MPC acknowledged the slight moderation in headline inflation in July and August 2024, largely due to a decline in food inflation.
However, members expressed concern over the rising energy prices, which continue to drive core inflation upward.
“The persistence of inflationary pressures, particularly in the core segment, remains a severe concern to the committee. Addressing the upward pressure on energy prices is crucial to stabilizing inflation,” the CBN stated.
Additionally, the committee commended the relative stability of the exchange rate across market segments, crediting the CBN’s tight monetary policy for this improvement.
“The bank’s firm stance on monetary tightening has fostered stability in the exchange rate, boosting confidence and enabling economic agents to make long-term plans,” said the CBN.
The committee identified excess liquidity in the system as a contributing factor to exchange rate volatility and inflationary pressures. To address this, members emphasised the need for increased monitoring of the banking system, particularly in relation to the disbursement of FAAC (Federation Account Allocation Committee) funds.
“The strong correlation between FAAC releases and liquidity levels in the banking sector highlights the importance of monitoring these releases closely,” the CBN noted.
The MPC pointed out that the upside risks to food inflation remain significant, citing factors such as flooding, rising energy costs, PMS scarcity, and insecurity in farming communities.
“Insecurity in farming areas continues to pose a threat to food supply and inflation. The Federal Government’s efforts to address these security challenges are commendable, but sustained action is necessary,” the CBN remarked.
The committee also praised the government’s move to allow duty-free imports of food commodities, which they expect will help mitigate food price inflation.
The CBN also expressed optimism that the increased supply of refined petroleum from the Dangote refinery would ease transportation costs, thereby reducing food prices in the near term.
“We anticipate that the commencement of refined petroleum product deliveries from the Dangote refinery will significantly lower transportation costs and ease food price pressures,” the CBN added.
In conclusion, the CBN reiterated its commitment to curbing inflation and stabilizing the exchange rate, stressing the importance of close collaboration with fiscal authorities to address the current economic challenges.
