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  • How cut in interest rate will stimulate economy, by experts

    How cut in interest rate will stimulate economy, by experts

    • CBN slashes rate to 27 per cent
    • 14 major banks fully recapitalised

    Experts and business leaders have described yesterday’s benchmark interest rate cut of the Cental Bank of Nigeria (CBN) as a major step towards driving economic growth, boosting employment and widening the gains of macroeconomic reforms on the citizens.

    After its two-day Monetary Policy Committee (MPC) meeting, the CBN shifted to a new phase of its macroeconomic development agenda with reduction of the benchmark interest rate by 50 basis points, the first rate cut in two years.

    It reduced Monetary Policy Rate (MPR) by 50 basis points (bps) from 27.50 per cent to 27 per cent.

    The MPC also adjusted other monetary parameters. The Standing Facilities corridor around the MPR was narrowed from +500bps/-100bps to +250/-250 bps. The Cash Reserve Ratio (CRR) for commercial banks was reduced from 50 to 45 per cent, while that of merchant banks was retained at 16 per cent. The Liquidity Ratio was kept unchanged at 30 per cent.

    In addition, the MPC introduced a 75 per cent CRR on non-Treasury Single Account (TSA) public sector deposits. This measure requires commercial banks holding government funds outside the TSA to keep three-quarters of such deposits with the CBN.

    The CBN’s decision came on the heels of many reports that showed stability in the macroeconomic outlook, with sustained disinflation, above-average economic growth and foreign exchange (forex) inflows.

    Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the CBN’s  decision marked “a significant policy shift toward supporting growth and investment, following an extended period of aggressive monetary tightening to rein in inflation”.

    According to him, having restored a measure of macroeconomic stability and slowed inflationary pressures, the MPC’s pivot toward growth is logical and timely.

    He noted that high interest rates have significantly constrained private sector credit, increased the cost of funds, and weighed on business expansion.

    “By lowering the MPR and CRR, the CBN is deliberately working to improve liquidity conditions, reduce borrowing costs, and unlock capital for productive sectors of the economy.

    “The combination of lower MPR and reduced CRR should expand banks’ capacity to create credit, lowering lending rates and making financing more accessible for businesses, especially small and medium enterprises (SMEs). Lower cost of funds will encourage new investments, support business expansion, and enhance capacity utilisation in the real sector. This will, ultimately, stimulate output growth and job creation.

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    “A more accommodative monetary environment will enable banks to fulfill their core function of mobilising savings and channelling them into productive investments, reinforcing financial deepening and economic growth. The decision to impose a 75 per cent CRR on non-TSA public sector deposits is a prudent measure to prevent excessive fiscal-driven liquidity injections from destabilising the financial system,” Yusuf said.

    He stressed the need for complementary fiscal measures, noting that while monetary easing is a welcome development, fiscal policy must play a complementary role to fully unlock growth potential.

    Announcing the outcome of the September MPC meeting in Abuja, CBN Governor Olayemi Cardoso said the change in policy stance was based on review of macroeconomic developments.

    According to him, the decision by the MPC to ease the policy stance was made in the light of improving inflation trends.

    “The committee’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025 and the need to support economic recovery efforts,” Cardoso said.

    Cardoso explained that the introduction of new measures was aimed at strengthening monetary control, improving liquidity management, and reinforcing the TSA regime.

    He noted that the country’s gross external reserves rose to $43.05 billion as of September 11, thus providing an import cover of 8.28 months.

    He attributed the rise to improved forex inflows, which underlined increasing investor confidence in the national economic outlook.

    “It has been on an upward trajectory. And honestly, as far as I can see, the measures that we’ve used to get to where we’ve got to and to be able to talk about a foreign reserves position that was the highest since 2019, we will continue to deploy,” Cardoso said in relation to the forex reserves.

    He pointed to initiatives, such as the Non-Resident BVN (NRBVN) scheme, which has boosted foreign inflows.

    He said: “When we started that journey, it was basically $200 million per month. We doubled it in no time, and now going into next year, we are saying we are going to attain $1 billion. And we will do it”.

    Responding to questions about how monetary and fiscal authorities plan to sustain the disinflationary trend in the run-up to the 2026 pre-election year, Cardoso said both institutions remain committed to working together to deliver single-digit inflation.

    “Our goal is for single digit. That’s our goal. And that is something that we are resolute on. We will not stop until we get there,” Cardoso said.

    Cardoso stressed that the MPC’s approach would remain data-driven and proactive in responding to domestic and external risks.

    He emphasised the importance of exchange rate stability and fiscal discipline in sustaining recent gains.

    He noted that the CBN and the Ministry of Finance have intensified collaboration in recent months, noting that without the Ministry of Finance collaborating with the bank, it would not have got to where it has got.

    On the economic outlook, Cardoso said projections suggest a sustained decline in inflation in the coming months, supported by previous rate hikes, foreign exchange market stability, lower petrol prices, and increased food supply from the harvest season.

    He said: “The onset of the harvest season is expected to increase local food supply, moderate food prices and contribute to the overall decline in inflation”.

    Finance and economy experts said the decision of the CBN sent a positive signal on the overall outlook of the economy.

    Other financial experts, who spoke on the CBN action, include Managing Director of AIICO Capital, Dr. Femi Ademola. He said reduction in the benchmark interest rate was not unexpected as all parameters pointed to the need for monetary easing.

    He said CBN’s decision could lead to stronger performances in the financial market, stronger profits from banks attracting investors and helping their recapitalisation efforts.

    He said: “The rate cut will have instant impact on the financial markets as instruments are reprised, including lending rates to the real sector of the economy. Lower benchmark would lead to lowering yields of fixed income instruments and more profits for investors. Low lending rates could also improve borrower’s capacity to repay and thus boost banks’ earnings while reducing non-performing loans (NPLs)”.

    Managing Director of GTI Capital, Mr. Kehinde Hassan, said the decision of the CBN would make credit more affordable for businesses and households, which could stimulate investment and consumption.

    “This combination of measures may be viewed by investors as a sign of improving macroeconomic stability, potentially strengthening confidence in Nigerian assets.

    “Higher capital buffers enhance banks’ resilience to economic and foreign exchange volatility, while stronger balance sheets expand their capacity to finance large-scale infrastructure, energy, and industrial projects. Successful recapitalisation also reassures investors and rating agencies about the stability of Nigeria’s financial system,” Hassan said.

    He, however, noted the need for other banks to step up their recapitalisation efforts as smaller banks that struggle to meet the thresholds may lose market share or face mergers and acquisitions, leading to a more concentrated yet potentially more stable banking sector.

    Chairman of Nigeria Economic Summit Group (NESG), Mr. Niyi Yusuf, said the bank’s decision was “a cautious response” to the five-month reduction in inflation.

    He said: “It was a delicate balancing act by the CBN in response to the expectations by the private sector of monetary policy ease to enable access to credit and at lower and more affordable rates. However, while inflation is reducing, forex rate is stable and our foreign reserves have increased to $43 billion, representing highest level since 2019, there is still a few things to watch out for – food inflation, which is not reducing; potential excess liquidity from increased FAAC allocation; and increased consumer spending during end of year festivities, all of which can undermine the CBN’s disinflation efforts if not counterbalanced by tighter monetary conditions and appropriate fiscal measures.

     “The bank recapitalisation that will end in March 2026 is also increasing money in the banking sector that will be available for lending to consumers so that banks can provide improved return on investment (ROI) to investors. This new capital in the banking sector can also lead to higher inflation if not matched by increased productivity, especially in 2026 where we expect intense political activities and higher political spending on campaigns ahead of 2027 general election. Hence, MPC’s cautious stance, which we witnessed at its 302 meeting in September”.

    Analysts at Arthur Steven Asset Management said the MPC decision was a notable policy inflection, with early signs of macroeconomic stabilisation,  falling inflation, improving GDP, rising reserves, and a stronger naira.

    “While risks remain, the easing stance introduces a cautiously optimistic tone across sectors, especially if followed by fiscal and structural alignment,” Arthur Steven said.

    Managing Director of Highcap Securities, Mr David Adonri, called for caution, noting that there were still many downside risks to the disinflationary trend.

    According to him, while the relaxation of monetary policy was no doubt data driven, the threats that elicited the contractionary monetary policy remain strong.

    “Rural insecurity and volatility of commodity prices are still hanging over the economy like an albatross. The situation is further complicated by huge fiscal expansion which the governor alluded to in his report. When, coupled with the expansionary monetary policy as announced, I doubt if the policy measure will not backfire because of excessive macroeconomic liquidity. It is quite encouraging that due to the continued tightness of monetary policy, the impact on inflation had been positive. Perhaps, more persistence and patience in applying the contractionary monetary policy could have taken inflation rate to single digit wherein one can safely say that the tight monetary policy goal had been achieved. Only time will tell whether or not this policy decision is hasty and premature,” Adonri said.

    Managing Partner, Biodun Adedipe & Associates, Dr Biodun Adedipe said the CBN rate cut was a signal of what to expect if disinflation continues.

    He said: “It is appropriate response to the macroeconomic stability and less vulnerable external sector.  It is unlikely to result in any worthwhile reduction in banks’ lending rates, but a message to the banks, their customers and other stakeholders of what to expect if inflationary pressures further ease. The cut is not deep enough to rattle global investors and I therefore see no worries about foreign portfolio investors (FPIs)”.

    He added that  the recapitalization was progressing well, with the process expected to become more intense towards end of the year and in first quarter 2026 towards the deadline. “Banks that can’t make the minimum amount for their current authorization will seek mergers and acquisitions deals, and possible license downgrade. I don’t see any liquidation this time around, unlike at the end of the 2004-2005 recapitalisation exercise,” Adedipe said.

    The Nigeria Employers’ Consultative Association (NECA) has commended the Central Bank of Nigeria (CBN) for reducing the Monetary Policy Rate (MPR), while warning about potential limitations of the decision.

    NECA Director-General, Mr Adewale-Smatt Oyerinde, stated Tuesday in Abuja that the modest rate cut must translate into real economic benefits for households and businesses across Nigeria to have meaningful impact.

    At its 302nd meeting, the Monetary Policy Committee (MPC) lowered the MPR by 50 basis points to 27 per cent and introduced new measures on cash reserve and liquidity requirements.

    Oyerinde noted inflation had steadily declined, with headline inflation dropping to 20.12 per cent in August from 21.88 per cent in July, based on data from the National Bureau of Statistics.

    “For over five months, inflationary pressures have eased.

    “This provides critical space for policymakers to balance price stability with the urgent need to stimulate real economic growth,” Oyerinde said.

    He warned that the impact of the rate cut would depend on effective transmission mechanisms.

    He said without this, the intended boost to credit access and economic expansion might not materialise.

    “If credit costs are lowered, businesses can access financing, expand operations, and create jobs.

    “However, high cash reserve ratios may continue to constrain lending and undermine these expected outcomes,” he said.

    In spite of overall inflation easing, Oyerinde highlighted that food inflation remained persistently high, putting pressure on household budgets and eroding the disposable income of average Nigerian families.

    “Macroeconomic stability only becomes meaningful when Nigerians feel tangible relief, especially through lower food and living costs,” he emphasised, urging deeper economic reforms beyond monetary policy adjustments.

    Oyerinde called on the government to complement monetary actions with fiscal reforms addressing exchange rate instability, insecurity in farming communities, and inefficiencies in energy and transport infrastructure.

    “It is time to complement price stability with deliberate growth stimulation.

    “This is the message Nigerians need right now to find relief from the ongoing cost-of-living crisis,” Oyerinde said.

    Nigeria’s Gross Domestic Product (GDP) grew by 4.23 per cent in real terms in the second quarter of 2025 as broad improvements across key sectors of the economy pushed the nation’s productivity above average projections.

    The National Bureau of Statistics (NBS) in its “Q2 2025 GDP Report” reported that the economy further expanded in the second quarter with a real GDP growth of 4.23 per cent, 110 basis points above 3.13 per cent recorded in first quarter 2025 GDP. GDP had risen by 3.48 per cent in corresponding second quarter of 2024.

  • JUST IN: CBN maintains interest rate at 27.5%

    JUST IN: CBN maintains interest rate at 27.5%

    The Central Bank of Nigeria (CBN) has, once again, kept its key lending rate, known as the Monetary Policy Rate (MPR), at 27.5 per cent.

    The Governor of CBN, Yemi Cardoso, announced the decision on Tuesday in Abuja, following the 301st Monetary Policy Committee (MPC) meeting.

    Cardoso said that all 12 MPC members voted unanimously to hold all key monetary parameters.

    The committee, thus, retained the cash reserve ratio at 50 per cent for deposit money banks and 16 per cent for merchant banks.

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    It also retained liquidity ratio at 30 per cent, and the asymmetric corridor was held at +500/-100 basis points around the MPR.

    The News Agency of Nigeria reports that with this decision, the MPC has retained the rates for three consecutive meetings.

    NAN

  • JUST IN: CBN retains interest rate at 27.50%

    JUST IN: CBN retains interest rate at 27.50%

    For the first time since February 2024, the Central Bank of Nigeria (CBN) has maintained the Monetary Policy Rate (MPR) at 27.5 percent.

    CBN Governor Yemi Cardoso announced the decision on Tuesday in Abuja following the 300th Monetary Policy Committee (MPC) meeting.

    Cardoso said all 12 MPC members voted unanimously to hold all key monetary parameters.

    The committee retained the Cash Reserve Ratio at 50 per cent for Deposit Money Banks and 16 per cent for Merchant Banks.

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    The Liquidity Ratio remains at 30 per cent, and the Asymmetric Corridor was held at +500/-100 basis points around the MPR.

    The News Agency of Nigeria (NAN) reports that since February 2024, the MPC under Cardoso had raised the MPR from 18.5 per cent to 27.5 per cent before opting to pause rate hikes with this latest decision.

    (NAN)

  • FX reforms, interest rate hike trigger Fitch Ratings credit upgrade

    FX reforms, interest rate hike trigger Fitch Ratings credit upgrade

    Global credit rating agency Fitch Ratings has upgraded Nigeria’s credit rating to B, citing a wave of economic reforms that have bolstered policy credibility and eased near-term threats to macroeconomic stability. At the heart of these reforms is the Central Bank of Nigeria’s (CBN) push to formalise foreign exchange activities and strengthen monetary policy transmission. This has been achieved through a mix of policy rate hikes, prudential measures and operational tools such as open market operations—marking a clear departure from years of financial repression, writes Assistant Editor COLLINS NWEZE.

    Fitch Ratings’ recent positive report on the Nigerian economy came as no surprise to stakeholders closely monitoring the bold economic reforms championed by the country’s monetary and fiscal authorities. From the unification of exchange rates to curb market arbitrage, to the rollout of an electronic FX matching platform and a new foreign exchange code aimed at enhancing transparency and efficiency, the Central Bank of Nigeria (CBN) has signalled a strong commitment to stabilising the currency. Coupled with a decisive shift towards monetary policy tightening to rein in inflation, these measures underscore the CBN’s drive toward sustainable economic growth and exchange rate stability.

    Already, the latest Fitch rating moved Nigeria’s long-term foreign-currency issuer default rating (IDR) from negative to stable, meaning that the country stands a better chance of attracting foreign investment, borrow money on international markets at better interest rates, and boost investor confidence. Fitch also applauded government’s commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening and steps to end deficit monetisation as well as fuel subsidies removal. “These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks,” the agency stated.

    Sustaining FX Code/ EFEMS implementation

    The apex bank recently took strategic step to enhance transparency and boost market confidence with the inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja. The FX Code has so far ignited naira stability at both official and parallel markets. CBN Governor Olayemi Cardoso recently launched the FX Code, emphasising integrity, fairness, transparency, and efficiency as critical pillars for driving Nigeria’s economic growth and stability. He emphasized that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement processes. These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market.

    According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”

    The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive. Governor Cardoso also noted that the journey towards market reform is already yielding results. He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

    Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions. Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020. These legislative instruments empower the CBN to establish and enforce directives regarding the standards financial institutions must follow in conducting foreign exchange business in Nigeria. The FX Code, therefore, serves as an official directive that all market participants are expected to observe in their operations.

    Besides FX Code, the apex bank also introduced the Electronic Foreign Exchange Matching System (EFEMS), which has proven effective in other economies in enhancing the functionality of the foreign exchange market. The EFEMS was meant to check forex market distortions, eliminate speculative activities and instil transparency. The EFEMS, which is commonplace in developed and developing markets, offers real-time information on currency rates, trading volumes and market activity.

    Understanding monetary policy decisions

    In February, the apex bank retained its benchmark lending rate at 27.50 per cent, marking the first time it has opted to maintain the rate in almost three years. CBN had been persistent in raising the lending rates since March 2022 when the rate stood at 11.5 per cent. The Monetary Policy Committee (MPC) of the bank stated that its unanimous decision was influenced by recent macroeconomic developments, which it noted with satisfaction. These include stability in the foreign exchange market, leading to an appreciation of the exchange rate, and the gradual moderation in petrol prices, both of which are expected to positively impact price dynamics in the near to medium term. The benchmark rate is the standard interest rate set by central banks, used to guide lending rates and influence economic activities, inflation, and financial stability. The central bank also retained the asymmetric corridor around the MPR at +500 to -100 basis points.

    Cardoso said the committee voted to retain the Cash Reserve Ratio (CRR) at 50 per cent for commercial banks, while maintaining the CRR of merchant banks at 16 per cent. The committee also voted to retain the liquidity ratio at 30 per cent. The CBN has continued tightening monetary policy to curb inflation, implementing a series of interest rate hikes throughout 2024. These decisions were aimed at stabilising the economy amid persistent price pressures. In 2024, the bank raised rates six times, delivering a cumulative increase of 875 basis points.  “The committee highlighted the benefits of the improvements in the external sector to exchange rate stability, including the convergence of race between the Nigeria foreign exchange market and the Bureau to change and urge the bank to relent, not to relent in its effort to boost market liquidity,” Cardoso said.

    Other highlights of the ratings upgrade

    Fitch expects the macroeconomic policy stance to support the move to lower inflation and sustain improvements in the foreign exchange (FX) market’s operation, though it will likely remain much higher than rating peers. It also expects “a continued reduction in external vulnerabilities through further easing of domestic FC supply constraints, while renewed energy sector reforms should help sustain current account surpluses.”

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    It added: “Greater formalisation of FX activity including the Central Bank of Nigeria’s (CBN) recent introduction of an electronic FX matching platform and a new FX code to enhance transparency and efficiency, along with monetary policy tightening, has led to a greater rise in FX liquidity and general stability in the FX market after a 40% depreciation in 2024, closing the spread between the official and parallel exchange rates.

    “Net official FX inflows through the CBN and autonomous sources rose by about 89% in 4Q24, compared to an 8% rise in 4Q23. We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term. The CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5% (up 875bp since February 2024) and use of prudential and operational tools such as open market operations (at rates closely aligned to the MPR) to strengthen monetary policy transmission after years of financial repression.”

    Reacting to the Fitch rating, Oladele Adeoye, Chief Rating Officer at DataPro, a Nigerian credit rating agency, said it was a positive development “in all ways.” Adeoye said it would boost investors’ confidence in Nigeria’s Eurobond as people would readily subscribe whenever it is issued. “Good rating also implies lower cost of fund. Of course, there will be inflow of foreign currency into the economy and this will give further room for the CBN to support the local currency and strengthen exchange rate,” he said.

    On how the government can improve on this, Adeoye said: “Nigeria must increase productivity that can boost export and lower import. This will enhance the external reserve and improve public finance. “We need to continue to improve our revenue base, and this includes both oil and non-oil revenue.”

    Registrar/Chief Executive Officer, Nigeria Institute of Credit Administration (NICA) Chartered, Prof. Chris Onalo, said the national body for credit management said the Fitch rating “means a lot.” He said he could not agree less with the agency’s rating. “It is solid, it is stable, it is progressing, and it has a future outlook,” Onalo said.

    On further steps government can take on the economy, he said: “The government should focus on expanding the economy. In other words, all-inclusive economic activities. “The government should fix the infrastructural problem, because that will stimulate future ratings. It should also reduce the cost of doing business drastically. And then fix electricity and clamp down on the local insecurity, like the insurgency is becoming a thing of the past now, but pocket pickers, people that break into offices, and you can arrest that by creating avenues for job, wider job availability for people that are regarded as forgotten miscreants. The Fitch Ratings shows that the country has a stable outlook in terms of investment and that can have a positive effect on our foreign direct investments.”

    Other analysts described the Fitch rating as “a significant step forward in restoring investor confidence and economic stability.” According to them, the development means an improvement in Nigeria’s creditworthiness, which could open up new opportunities for the country across several sectors. “A ‘B’ rating from Fitch is a step up, which is generally a positive sign. It means Fitch believes Nigeria’s creditworthiness has improved,” Dr. Balogun said. He explained that the upgrade could enhance Nigeria’s attractiveness to international investors. “A better credit rating makes Nigeria a more attractive place for investors. This could lead to increased foreign investment in various sectors,” he noted.

    One of the major implications of the improved rating is that Nigeria may now be able to borrow at lower interest rates. The Fitch Ratings is also expected to allow the federal government to finance projects more efficiently and manage its debt burden more effectively and further send a signal to the global community that Nigeria’s economy is on a more stable footing, which could in turn boost international confidence in the country’s financial environment. Additionally, the new rating could offer Nigeria better access to international financial markets, thereby increasing funding options for both the public and private sectors.

    With positive Fitch Ratings which would lead to potentially lower borrowing costs, the government could invest more in infrastructure development—roads, bridges and power plants—thereby attracting both local and international capital. Such investments would support government’s continued drive for infrastructure development and sustainable growth for the economy.

  • How to make interest rate hike impactful, by experts

    How to make interest rate hike impactful, by experts

    With aggressive fiscal supports, Tuesday’s increase in interest rate benchmark by the Central Bank of Nigeria (CBN) will stabilise the economy, experts said yesterday.

    Finance and economic experts, who said that the decision taken by the apex bank at its 294th Monetary Policy Committee (MPC) meeting, called for more fiscal initiatives to support long-term price stability and economic growth.

    They were reacting to the decision of MPC to increase the Monetary Policy Rate (MPR) by 200 basis points to 24.75 per cent from 22.75 per cent (which was fixed at the February 27 meeting of the committee).

    The experts said the apex bank’s tightening stance was necessary to tame the extremely volatile foreign exchange (forex) market and the general pricing situation.

    The naira appreciated yesterday by 6.4 per cent, closing at N1,300.43/$ dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM), as the financial markets continued to respond positively to the CBN’s monetary stance.

    Those who reacted to the apex bank’s measures, included: Managing Director, Arthur Steven Asset Management, M Olatunde Amolegbe; Managing Director, AIICO Capital, Femi Ademola; President, Association of Capital Market Academics in Nigeria, Prof Uche Uwaleke and Managing Director, HighCap Securities, David Adonri.

    Amolegbe said the hike was expected as it appeared that hiking the rate was having the right impact on the exchange rate and hopefully on inflation rate.

    He said: “The implication of course is that finance cost for companies goes up and this could ultimately affect growth negatively.

    “However in the short run this is expected to encourage more inflows of foreign exchange from foreign portfolio investors (FPIs) which also redirecting local investors interest towards the fixed income market. This should help stabilize the foreign exchange (forex) market are possibly strengthen the naira as supply increases as demand reduces.”

    Ademola, a chartered financial analyst, said the increase as a short-term measure was necessary in the face of the continuously surging inflation and the exchange rate volatility.

    According to him, only such actions by the monetary authority can be used to try to stabilise things before the longer-term fiscal policies take effects.

    He noted that these actions, monetary tightening through the combined effect of interest rate increase and restrictive money supply, are proving to be yielding results, albeit temporarily in attracting foreign exchange and strengthening the naira, although, the effect on inflation is yet to be seen.

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    Ademola said: “These actions while meeting the short-term objectives of the government may not be sustainable in the long run.

    “Monetary tightening increases the cost of funds to domestic investors and also the cost of domestic government debts; hence it is better kept to the short-term so as not to discourage domestic investment and increase the debt services expenses of the government.

    “Following the MPC decision, the market would reprice all financial instruments and banks would also increase deposit and lending rates. The equity market may also suffer from portfolio rebalance and investors adjust their assets allocation to more of fixed income securities.

    “In the long-term, the fiscal authority needs to take the heavy lifting of fiscal and structural reforms to support the efforts of the monetary policy in reining in inflation and stabilizing the exchange rate.

    “This would provide the foundational economic support that would lead to the moderation of interest rate as soon as possible.”

    Uwaleke noted that as much as tightening is necessary at this time in view of elevated inflation, MPC should tighten policy incrementally and in a measured manner that optimizes the CBN’s policy tool kit without undue reliance on the monetary policy rate.

  • Interest rate rises to 24.75%

    Interest rate rises to 24.75%

    • Why customers should pay more on bank loans, by CBN

    • Experts analyse apex bank’s monetary policy decisions

    Experts yesterday backed the Central Bank of Nigeria (CBN) after it raised the interest rate by 24.75 per cent to tackle inflation.

    The Monetary Policy Committee (MPC), after its meeting in Abuja, announced a significant hike in the benchmark interest rate.

    The decision, accompanied by adjustments to reserve requirements for banks, aims to tighten control over the money supply and stabilise prices.

    CBN Governor Yemi Cardoso reiterated its commitment to maintaining price stability and fighting inflation.

    He stressed the need for strict adherence to the core mandate of the central bank, including maintaining purchasing power.

    According to Cardoso, the Committee raised the Monetary Policy Rate (MPR) by 200 basis points to 24.75 per cent from 22.75 per cent (which was fixed at the February 27 meeting of the MPC).

    It adjusted the asymmetric corridor around the MPR to +100/-300 basis points and retained the Cash Reserve Ratio of Deposit Money Banks at 45.0 per cent.

    The committee adjusted the Cash Reserve Ratio of merchant banks from 10.0 to 14.0 per cent and retained the liquidity ratio at 30.0 per cent

    The CBN anticipates a gradual moderation of inflation rates by May, with measures in place to foster economic growth while maintaining price stability.

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    The committee called for the full implementation of agricultural policies to enhance food supply and urged broader fiscal consolidation to improve tax collection.

    Cardoso addressed concerns regarding the forex market, emphasising the need to foster competition and transparency.

    He faulted the “oligopolistic nature of restrictions on dairy imports,” advocating an open and inclusive foreign exchange market.

    On cryptocurrency regulation and the Binance scandal, Cardoso clarified the CBN’s limited role, highlighting collaboration with relevant authorities.

    He stressed that cryptocurrency regulation falls under the purview of the Securities and Exchange Commission (SEC).

    Yesterday MPC meeting is the second within the last one month and the second since Cardoso became the CBN governor.

    A financial analyst, Michael Nwadike, said the naira is already appreciating after the MPC decisions.

     He said the pressure on the foreign exchange (FX) market eased yesterday as the naira made massive gains to N1,340/$1 on the parallel market.

    It was stronger than N1,408.04 on the official market, resulting in an exchange rate gap of N68.04.

    This, he said, represents an 8.21 per cent gain against the dollar, compared to N1,450/$1 closed on Monday at the unofficial market.

    Compared to the level on February 20, 2024, the naira has gained 36.19 per cent of its value against the dollar from the lowest of N1,825/$ on the parallel market, popularly called the black market.

    At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira appreciated by 1.78 per cent to close at N1,382.95/$1.

    The local currency was quoted at N1,408.04 on Monday, stronger than N1,431.49 quoted on Friday.

    Managing Director/Chief Executive Officer of Economic Associates, Dr. Ayo Teriba, believes by raising the MPR by 200 basis points, the MPC sacrificed production on the altar of exchange rate stability.

    He said although the MPC are forced into a dire trade-off by the fact of foreign reserve inadequacy, the sustainability of that strategy remains to be seen.

    Teriba said: “Reserve adequacy must be achieved to avoid such trade-offs and deliver simultaneous growth and sustainable stability.”

    Managing Director and Chief Executive Officer of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, hailed efforts to tackle inflation.

    He warned that the limitations of the monetary policy in this respect need to be recognised, insisting that there is a need for a balancing act for economic recovery. 

    Yusuf said: “The limitations of monetary policy in this respect need to be recognised. 

    “There are contextual issues of weak transmission mechanism, weak financial inclusion, risk to financial intermediation and the escalating financing cost to the real economy.

    “The economy needs as much attention to economic growth, job creation and production as it deserves for tackling inflation.

    “This balancing act is critical for the economic recovery process.”

    He feared that the hike could further hurt the real sector of the economy which is already contending with numerous macroeconomic challenges.

    “The MPR increase poses a major risk to the financial intermediation role of banks in the Nigerian economy. 

    “The increase would constrain the capacity of banks to support economic growth and investment, especially in the real sector of the economy because the increases are quite significant.

    “Although the decision was consistent with the typical policy response of the central banks globally, it failed to reckon with domestic peculiarities.

    “The key drivers of Nigeria inflation are largely supply-side variables, and the CBN ways and means financing. 

    “Over the last two years, there had been persistent monetary policy tightening, yet there has not been any significant impact on the inflationary pressures.

    “If anything, the general price level had been continuously on the increase.”

    On the way forward, he urged the CBN to boost institutional lending capacity.

    Yusuf added: “We recognise that the primary mandate of the CBN is price stability, but numerous headwinds have posed significant risks to this critical objective.

    “Some of these include the surge in commodity prices and impact on energy cost, disruptive effects of insecurity on agricultural output, and global supply chain disruptions.

    “The surge in ways and means finance also makes the CBN a culprit in the inflation predicament over the past few years. 

    “The hike in MPR or CRR would not change these variables.

    “The Nigerian economy is not a credit-driven economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand.

    “The level of financial inclusion in the Nigerian economy is still quite low, access to credit by households and MSMEs is still very challenging, and the informal sector accounts for close to 50 per cent of the economy.

    “The new dramatic increase in MPR hike means that the cost of credit to the few private sector entities that have exposure to bank credits will increase, which will impact their operating costs, prices of their products and profit margins, amidst very challenging operating conditions. 

    “The equities market may also be adversely impacted by the hike.

    “It is thus imperative for the CBN to accelerate the process of increased capitalisation of the development finance institutions to create a concessionary financing window for the real sector and the small businesses.”

  • Investors lose N1.83tr on interest rate adjustments

    Investors lose N1.83tr on interest rate adjustments

    • Transcorp, UBA, Access Holdings lead trading

    Nigerian equities market closed weekend with its highest loss in recent period as a market-wide selloff that followed Central Bank of Nigeria (CBN)’s hike of the benchmark interest rate left investors with net loss of N1.83 trillion.

    The Monetary Policy Committee (MPC) of the CBN had at the end of its two-day meeting on Tuesday announced increase in the Monetary Policy Rate (MPR) by 400 basis points to 22.75 per cent.

    The hike in relatively risk-free benchmark return to 22.75 per cent triggered a flight to fixed-income with several investors realigning their portfolios in favour of fixed-income securities. The scramble for exit overwhelmed the earnings season mood at the stock market, will all sectoral indices closing negative.

    There were two losers for every gainer during the week, despite the announcement of several audited reports and dividend recommendations.

    The All Share Index (ASI)- the value-based common index that tracks all share prices at the Nigerian Exchange (NGX) dropped by 3.27 per cent to close weekend at 98,751.98 points as against its week’s opening index of 102,088.30 points.

    Aggregate market value of all quoted equities declined simultaneously from the week’s opening value of N55.861 trillion to close weekend at N54.035 trillion.  The decline pressured the market’s average year-to-date return to 32.07 per cent. However, Nigeria’s year-to-date return remains the highest among tracked advanced and emerging markets.

    Read Also: Experts cautious on CBN’s interest rate hike

    Analysts attributed the decline at the equities market to the direct impact of the increase in MPR.

    Cordros Capital Group said Nigerian equities market lost ground because “investors responded unfavourably” to the MPC meeting outcome.

    “In the near term, we anticipate cautious trading from domestic investors in response to the recent interest rate decision by the MPC and the uninspiring corporate earnings released thus far,” Cordros Capital stated.

    There were 54 losers against 27 gainers last week compared with 66 losers and 14 gainers in the previous week. MTN Nigeria Communications Plc led the losers, in percentage terms, with a drop of 18.91 per cent to close at N200.70 per share. On the other hand, Juli Plc recorded the highest gain of 60.26 per cent to close at N3.75 per share.

    Total turnover however rose to 1.88 billion shares worth N34.15 billion in 48,464 deals last week as against a total of 1.38 billion shares valued at N31.58 billion traded in 42,040 deals two weeks ago.

    Financial services sector remained atop activity chart with 1.275 billion shares valued at N20.427 billion traded in 24,801 deals; thus contributing 67.78 per cent and 59.82 per cent to the total equity turnover volume and value respectively. The conglomerates sector followed with 227.237 million shares worth N2.972 billion in 3,351 deals. Oil and gas sector placed third with a turnover of 115.327 million shares worth N746.959 million in 2,704 deals.

    The trio of Transnational Corporation (Transcorp) Plc, United Bank for Africa Plc and Access Holdings Plc were the most active stocks, accounting for 563.139 million shares worth N10.155 billion in 9,270 deals, representing 29.93 per cent and 29.74  per cent of the total equity turnover volume and value.

  • CBN slashes interest rate to 13.5%

    FOR the first time in more than two years, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday adjusted interest rate downwards to 13.5 per cent.

    Central Bank Governor Godwin Emefiele told reporters after the second MPC meeting that “the MPC voted to adjust the Monetary Policy Rate (MPR) by 50 basis points from 14 to 13.5 per cent; retain the asymmetric corridor of +200/-500 around the MPR; retain CRR at 22.5 per cent and retain the liquidity ratio at 30 per cent.”

    Emefiele said in arriving at the decision to adjust MPR (interest rate) downwards, “the committee was convinced that doing this will further uphold the banks’ commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy.

    “The MPC also felt that through loosening by a marginal rate, will serve to manage the sentiments in the capital flow market owing to the wider spread in yields in the emerging markets and the developing economies relative to the advanced economies. Moreover, the real interest rates will still remain positive.”

    Asked if there was a relationship between slashing interest rates and the loosening stance of the MPC as signalled yesterday, and funding Small and Medium Enterprises (SMEs), Emefiele explained: “To a reasonable extent, there is a relationship between lending to not just SME but to the agriculture, manufacture and the real sectors of the economy and our decision today.

    “The reason being that if you consider the fact that, for instance, January 2017, inflation had risen 18.72 percent and by December 2017, as a result of the pressure on the foreign exchange market, reserves have dropped to about $23 billion and by that same month, even what was accruing into Central Bank had dropped to about $500 million from as high as over $3 billion sometime in August 2013/2014.

    “Exchange rate as a result of the pressure had accelerated to as high as N525 to a dollar. But if you compare those numbers with where we are today, the inflation at 11.3 per cent, foreign reserves at close to $45 billion, and we feel this trend will continue. Exchange rate converging in all the markets at between N358 to N360, GDP being in positive trajectory consecutively for five to six quarters, then you will agree with me that there is relative stability and we have proved that there is sustainability in the level of macroeconomic indices in Nigeria.”

    Defending the decision further, Emefiele noted that “having being on this part, particularly the MPR  at about 14 per cent since July 2016,  and with the relative stability we have seen in the macroeconomic variables over the last two to two and a half years, we just think that this should be the next phase where we begin to think about consolidating growth. This should be the next phase where you should be talking about how do we create more jobs and reduce the level of unemployment in our country for people.

    “We believe this should be the next phase where we should be talking about how do we diversify the base of the Nigerian economy? And that in doing that, we will continue to keep our eyes on the stability that we have achieved so far in the macroeconomic environment. We will continue to do what we have been doing that is keeping inflation low, we will continue to do what we are doing that is keeping the exchange rate stable, we will continue to do what we are doing to ensure the reserves remain on positive trajectory at comfortable levels to be able to sustain the level of growth in our economy.”

    Read also: CBN lauds Ecobank’s Sustainability Efforts

    The CBN boss, however, sounded a note of caution, saying “there is a need for us to say, listen, we need to consolidate on what we have achieved so far and that is to begin to look at the level of growth again.

    “Looking at growth again also means that while keeping our eyes on those other parameters, let’s see whether we can signal a direction from the monetary policy to the direction of supporting and really accelerating growth in the country.”

    Accelerating growth, he explained, “means that we need to push harder to consolidate GDP, we need to push harder to make sure we create jobs and we need to push harder to diversify.

    “So, doing this will naturally mean that we are softening gradually, but I repeat and it shouldn’t be mistaken that we will continue to do what we are doing, what we have done in the past, keeping inflation at a moderated level, we will continue to do so. I think we are moving in the right direction.”

    Asked if this new level of ease on the interest rate will put pressure on the naira, Emefiele said: “The answer is a capital no, I don’t see that happening. Like I just told you that we have seen stability in the market over the last two to two and a half years and there is no need for anybody to worry. We will withstand any pressure.”

    When questioned if Nigeria is prepared for any economic pressure, the governor answered: “We have gone through it in 2015, 2016 and 2017. With the support of everybody, our management and MPC members were able to overcome such challenges and I do not think that there is any challenge that the management of the Central Bank cannot surmount. We would surmount them.”

    On the growth projection of 2.7 per cent by the CBN, Emefiele said: “We have actually been in positive growth trajectory in the last five to six quarters with an average GDP growth of about 1.9 per cent. I think that if you look at the trend from 2017 into 2018, we will naturally say that if we push hard, even harder than we have done in the past, that we should be able to attain the 2.7 per cent and three per cent growth.

    “What we are just trying to say here is that with the data available, and with consistency and with the push, that we are positive we will be trending towards 2.7 per cent  to three per cent in growth rate which is actually not fantastic if you consider where Nigeria’s growth trajectory has always been around five per cent.

    The MPC decided by a vote of six out of 11 members to reduce the MPR by 50 basis points, that is 0.5 per cent. Two members voted to reduce MPR by 0.25 per cent –  that is 25 basis points. A member voted to reduce it by 100 basis points, which is one per cent.

    Two members, however, voted to hold MPR at its current level. Ten members voted to hold all other parametres constant while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis points from 22.5 per cent to 21.5 per cent.

    The CBN governor also reacted to concerns raised over the impact of the discounted CRR, stressing. “We received a couple of demands but not many of those demands met our expectations. Don’t forget that this is money – liquidity that should be sterilised in central bank as cash reserve requirement, making them available to the banks and doing that we must make sure that they go into the employment and growth stimulating sectors of the economy: like agriculture and manufacturing. We will make sure that this liquidity given to the banks must be for projects and expansion plan.”

    The decision to slash interest rate, he explained, followed the action of “banks themselves which have started dropping the interest rate very marginally. But we are trying to let them know that in fact, in this case, I will say that we are following them. That is why we say that we are signaling. We are signaling in the sense that with time this will permeate the entire banking sector and people will begin to see the expected impact.”

    When asked if it will be the beginning of MPC rate cutting circle, Emefiele said: “I’ve not said so. I repeat, don’t quote me wrong, I only said it is a signal, but we will continue to do what we are doing that is keeping our friends happy, keeping everybody happy. But we are going to see if it will take us to the real growth trajectory that we so desire for Nigeria.”

    The MPC also noted the need to rebase the economy (GDP), which was last done in 2010.

    Reacting to this development, Prof Uche Uwaleke of the Nasarawa State University said: “The reduction in MPR by 50 basis points signals the CBN’s desire to relax monetary policy to support economic growth. Obviously, it is a right response to the declining inflationary pressure and the relative stability in exchange rate which have prevailed for quite some time.

    “Moreover, on the external front, crude oil price has stabilised around $65 per barrel while the US interest rate normalisation has slowed down. All these must have combined to influence the MPC decision which is expected to increase the flow of credit to the real sector.

    “The reduced MPR will also be positive for the capital market as some of the increased liquidity that will ensue will flow into the equities market. Also, it will be cheaper for the government to issue bonds, given that part of this year’s budget deficit will be financed through domestic borrowing.”

  • Nigeria needs lower interest rate, access to finance to drive growth

    Nigeria needs to implement fiscal and monetary policies that will considerably reduce interest rate and open up access to finance to Small and Medium Enterprises (SMEs) in order to drive national economic growth.

    Managing Director, H. Pierson Associates Limited, Mrs. Eileen Shaiyen said the only way to fast-track Nigerian economic growth through the SMEs is to drastically bring down interest rate and create access to finance.

    According to her, the SME space is desperately in need of a stimulus that will unearth the potential of the sector and enable it to drive broad economic growth.

    “But in the short term while we are making that strategic change, we need to look at the issue of interest rate. If we can get interest rate down to single digit, it will make a world of difference,” Shaiyen said.

    She noted that efforts must also be made to provide amenable capital to the SMEs beyond the traditional lending activities of the commercial banks.

    According to her, there is need to step back and review approach to the SME business. A lot of the SME businesses require venture capital, private equity; a different kind of money, not the traditional banking; the traditional money we find in our banking system doesn’t focus on this kind of business.

    Shaiyen commended the policy trust of the President Muhammadu Buhari administration urging the government to be committed to the execution of the Economic Recovery and Growth Plan (ERGP), which she said was well articulated and focused.

    “You will agree with me that it is very well-focused, well-articulated. But what we need is execution. In strategy, everything is about execution. As we go through to 2019, what we need is consistency in governance, and timeline for execution. If we begin to do that, you will begin to see the impact. But if you have major interjections that disrupt execution, you lose focus and the plans are disrupted,” Shaiyen said.

    She added that Nigerians need to choose transformational leaders who will run the country with the efficiency and thoughtfulness of an entrepreneur.

    She noted that leadership must be based on competence and track records rather than ethnocentric and other sentiments.

    “A leader has to be nominated based on the footprints of what he has done. Our economy, states are just too large to be used as experiments.  At all levels of leadership, we need a paradigm shift on how we see leadership. They must be leaders who have a global view and global standard. That requires deliverables and transformation. l think we need to have a fundamental shift on how we define good leadership and we need to also act very quickly,” Shaiyen said.

     

  • OPS expresses frustration over high interest rate in 2017

    The Organised Private Sector (OPS) in the country has expressed frustration over the high interest rate regime, which persisted last year.

    In its review of the outgone year, Manufacturers Association of Nigeria (MAN); Nigeria Employers Consultative Association (NECA) and Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) noted that  their vigorous  advocacy for single digit interest rate regime in Nigeria, specifically five per cent,  went  unheeded, and unfulfilled by the monetary policy.

    According to the various OPS organisations, whereas in Nigeria interest rate hovers between 25-30 per cent, excluding other ancillary charges. In other parts of the world their interest rates hover from 0 to 10 per cent. For instance in Kenya it is 10 per cent, South Africa seven per cent, China 4.35 per cent and, U.S.A 0.75 per cent. Others are United Kingdom 0.25 per cent, France 0.00 per cent, India 6.25 percent and Brazil 13 per cent.

    In addition they said Mexico is 5.75 per cent, while Indonesia is 4.75 percent, Ghana 25.5 per cent and Ethiopia five per cent,  urging the government to address the disparity to stimulate the growth of the sector.