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Tag: Monetary policy

  • Adjusting monetary policy rate for growth

    Adjusting monetary policy rate for growth

    • By Isah Aliyu Chiroma

    In a significant move aimed at reinforcing Nigeria’s economic recovery, the Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) to 27.00%, marking a 50 basis point decrease. This pivotal decision was announced during the 302nd Monetary Policy Committee (MPC) meeting held from September 22-23. Engaging discussions among the 12 members of the committee revolved around key developments in both international and domestic economies, specifically focusing on inflation trends, economic growth, and financial sector stability.

    The decision to lower the MPR reflects the MPC’s commitment to fostering an environment conducive to economic revitalization while maintaining essential macroeconomic stability. The backdrop to this decision includes a sustained disinflation trend observed over the past five months, coupled with positive projections indicating a further decline in inflation rates for the remainder of 2025. These factors offered a compelling justification for the policy adjustment, which the CBN anticipates will invigorate economic activity by reducing borrowing costs and facilitating increased investment across various sectors.

    One of the critical decisions made during the MPC meeting, alongside the MPR cut, was the adjustment of the corridor around the MPR to +250/-250 basis points. This change aims to enhance the efficiency of the interbank market and strengthen the transmission of monetary policy. The Monetary Policy Committee strategically identified this adjustment as necessary to promote stability in the financial sector and ensure effective functioning within the banking system.

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    Furthermore, the Cash Reserve Ratio (CRR) for commercial banks was increased to 45%, while the CRR for merchant banks remained unchanged at 16%. Additionally, the MPC introduced a new 75% CRR on non-TSA public sector deposits, a measure designed to improve liquidity management across the banking system. The Liquidity Ratio was retained at 30%, signifying the Committee’s commitment to balancing inflationary pressures and overarching growth objectives.

    Focusing on macroeconomic indicators, the MPC expressed considerable satisfaction with Nigeria’s prevailing state of macroeconomic stability. This stability is underscored by a range of positive developments reflected in significant indicators. Headline inflation, measured year-on-year, moderated to 20.12% in August, down from 21.88% in July. Notably, both food and core inflation contributed to this decline, signalling a positive trajectory for price stability in the country. Additionally, month-on-month headline inflation decreased to 0.74% in August, a noticeable drop from 1.99% in July.

    The moderation in inflation can be attributed to several factors, including decisive monetary policy tightening, stability in the exchange rate, increased capital inflows, and a favourable current account balance. These elements combined to create an environment conducive to sustained disinflation. Notably, the cost of goods and services, particularly in essential areas such as housing, utilities, and transport, has seen a slowdown, positively impacting the core inflation rate, which eased to 20.33% in August, down from 21.33% in July. In terms of food inflation, there was a significant moderation in prices, with food inflation declining to 21.87% in August from 22.74% in July, largely due to falling prices for staples such as rice, maize, and millet, which are vital for the average Nigerian household.

    In examining Nigeria’s economic growth, the MPC highlighted the robust performance demonstrated in the second quarter of 2025. The real Gross Domestic Product (GDP) growth rate reached 4.23% year-on-year, a remarkable improvement compared to the 3.13% recorded in the first quarter. The oil sector, a crucial pillar of the Nigerian economy, exhibited significant growth, achieving an impressive rate of 20.46% in Q2 2025, in stark contrast to the mere 1.87% seen in the previous quarter. This strong performance in the oil sector is expected to bolster foreign exchange reserves and ensure sustained stability in the foreign exchange market, thereby supporting overall economic health.

    The MPC commended the ongoing efforts of the federal government to enhance security across the nation. Improved security conditions have had a directly positive effect on crucial sectors, notably both oil output and food production. The committee emphasized the importance of continued vigilance to safeguard these gains and further strengthen economic performance moving forward. As security improves, investments in agriculture and oil production are likely to yield better returns, paving the way for sustainable growth.

    On the subject of banking sector resilience and financial stability, the MPC conveyed optimism regarding the continued strength of Nigeria’s banking system. Most financial soundness indicators remain well within their respective prudential benchmarks, a testament to the robustness of the sector. Notably, significant strides have been made in the ongoing bank recapitalization exercise, where 14 banks have successfully met the new capital requirements mandated by the CBN. This achievement is critical as it enhances the financial stability of banks and bolsters confidence among investors and depositors alike.

    To ensure the successful completion of the bank recapitalization process, the MPC urged the CBN to persist in implementing policies and initiatives aimed at fostering a stable and resilient banking environment. The termination of forbearance measures and waivers on single obligors marks a pivotal development that promotes greater transparency, enhances risk management, and induces long-term financial stability within the banking sector. The MPC reassured the public that the effects of removing forbearance measures would be transitory and should not pose a significant threat to the soundness of the banking sector.

    Despite the promising trends in inflation, the MPC noted a concerning build-up of excess liquidity within the banking system. This excess liquidity has primarily emerged due to improved fiscal releases consequent to enhanced government revenues. While excess liquidity can be indicative of economic vitality, it also poses risks to macroeconomic stability if not managed effectively. The committee recognized these risks and underscored the necessity for prudent liquidity management to avert potential inflationary pressures that could undermine the hard-earned gains in economic stability.

    The recent measures taken by the CBN, encapsulated in the decisions made during the MPC meeting, reflect a balanced and adaptive approach aimed at navigating the complexities of the economic landscape. By prioritizing the reduction of the MPR alongside adjustments to the CRR and other monetary policy tools, the CBN positions itself as a pivotal player in steering Nigeria toward a path of sustained economic recovery and growth.

    The interplay of inflation moderation, robust economic performance, and a resilient banking sector suggests that Nigeria is on a promising trajectory, with the potential for increased investment and improved living standards for its citizens. As we move forward, the continued collaboration between the government, the CBN, and other stakeholders will be vital in ensuring the long-term stability and prosperity of Nigeria’s economy.

     •Chiroma is a public affairs analyst with interest in economic policies and writes via aliyuisahchiroma29@gmail.com

  • Tackling inflation with monetary policy

    For over two years, the Monetary Policy Rate (MPR) has been 14 per cent in order to control inflation and stabilise the naira. This is in line with the Central Bank’s single digit inflation rate target of between six and nine per cent, which remains feasible, given last month’s inflation rate of 11.31 per cent. COLLINS NWEZE writes that aside monetary policy decisions, key interventions in agriculture and real sector have led to dip in inflation.

    The Central Bank of Nigeria (CBN) seems upbeat on the possibility of the economy returning to single digit inflation rate. The apex bank’s confidence is drawn from the declining inflation rate, which in February, dropped to 11.31 per cent, even at the heat of this year’s elections.

    The figure is by far lower than the 17.2 per cent rate in April 2017, based on the National Bureau of Statistics (NBS) data.

    This is coming on the heels of CBN’s effective monetary policy that has continuously mopped up excess liquidity in the system.

    The Godwin Emefiele-led CBN had embarked on tight monetary policy and introduced measures to boost domestic production as well as ensure that goods that can be produced locally are encouraged to thrive by placing some products under restriction of access to official foreign exchange market.

    Inflation, interest and lending rates are the three indicators taken seriously by the CBN. The regulator has never lost sight of the implication a single miscalculation on any of them could cause the people and the economy.

    That explains while the CBN-led Monetary Policy Committee (MPC) has kept benchmark interest rate steady at 14 per cent for over two years to curb inflation and support the naira.

     

    Inflation statistics

    Nigeria’s inflation rate dropped to 11.31 per cent in February this year from 11.37 per cent recorded in January 2019, the NBS said.

    The NBS report for February  released in Abuja, said the figure was 0.74 per cent points lower than the rate recorded in January.

    According to NBS, increases were recorded in all consumption that yielded the headline index.

    The report explained that on a month-on-month basis, the headline index increased by 0.73 per cent in February 2019, this is 0.01 per cent rate lower than the rate recorded in January 2019 (0.74 per cent).

    Besides, the percentage change in the average composite CPI for the 12 months period ending February 2019 over the average of the CPI for the previous 12 months period was 11.56 per cent, showing 0.24 per cent point from 11.80 per cent recorded in January 2019.

    It said the urban inflation rate increased by 11.59 per cent (year-on-year) in February 2019 from 11.66 per cent recorded in January 2019, while the rural inflation rate increased by 11.05 per cent in February 2019 from 11.11 per cent in January 2019.

    This means that the general level of prices of goods and services slowed in the February. Its effects are mostly on the purchasing power, loan repayment and country’s exchange rate through depreciation.

     

     MPC input

     The CBN-led Monetary Policy Committee (MPC) did not tamper with the existing policy rates at its last meeting. The committee took measures that will not in any way disrupt foreign capital flows ahead of the 2019 general elections.

    The committee also retained the Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30 per cent and maintain the foreign exchange policy, which has brought stability and boosted market liquidity.

    Managing Director, Afrinvest Limited, Ike Chioke said in emailed note to investors that the MPC kept a delicate balance between growth and price stability, and maintained status quo on all policy rates in order to avoid upsetting the current economic momentum.

    He said: “Our position is on a balance of factors underscored by careful analysis of sustained positive conditions in global commodity markets alongside emerging market risks and continued disinflation amid steady growth momentum.”

    Chioke said that going by the minutes of the MPC meeting, members continued to keenly watch developments in the global financial and commodity markets, given the connection to Nigeria’s external position.

    According to Afrinvest, the stable outlook on oil prices is expected to prop the capacity of the CBN to keep defending the domestic currency with the exchange rate of naira to the greenback stabilising at N305.85/$1.

     

    Dollar, Yuan interventions

    The naira has been continuously strengthened by the CBN dollar and Yuan interventions and other policy initiatives, including the introduction of the Investors’ & Exporters’ Forex Window, which has brought a convergence in the market, keeping the naira stable below N362 to the dollar in the parallel market.

    The economy has also enjoyed a major forex inflow in recent months with about $60 billion recorded in the I&E FX Window. The I&E Forex Window, also called willing-buyer willing-seller window, allows foreign investors to find buyers for their dollars at a mutually-agreed price.

    According to CBN’s Director, Corporate Communications, Isaac Okorafor, the sales in the Chinese Yuan were through a combination of spot and 15-day tenors.

    Okorafor said the exercise, in line with CBN guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials and machinery.

    He identified the bids received from authorised dealers as part of the requests attended to, adding that Renminbi’s availability was sure to ease pressure on the local forex market.

    The introduction of the I&E Forex Window was followed by continuous interventions by the CBN to strengthen Deposit Money Banks (DMBs) and the Bureau de Change (BDC) operators to meet forex demand at the retail end of the market.

    The naira now exchanges at N362 to dollar at the BDC and parallel market. The official rate for the local currency stood at N305.6 to dollar.

     

    Foreign reserves

    The $42.5 billion foreign reserves as at December last year is enough to guarantee 13-month import cover for the country, a report by the apex bank has shown.

    The stock of external reserves as at end-December 2018 stood at $42.5 billion,  indicating a depletion of 0.03 per cent when compared with the level in the preceding quarter. However, when compared with the corresponding period of 2017, it indicated an accretion of 8.2 per cent.

    According to the CBN, the level of external reserves could finance approximately 13 months of imports, compared with 10.3 and 15.6 months of imports cover recorded in the preceding quarter and corresponding period of 2017, respectively. These were however, above the West African Monetary Zone (WAMZ) and global benchmarks of six and three months, respectively.

    It said portfolio investments inflow to the economy decreased significantly to $1.38 billion in the fourth quarter of 2018 from $1.79 trillion and $3.78 trillion in the preceding quarter and the corresponding period of 2017. However, other investment liabilities increased to $1.42 trillion when compared with a reversal of $3.07 trillion recorded in the preceding quarter.

     

    Anchor Borrowers’

    Programme

     In over two years of the implementation of the Anchor Borrowers’ Programme (ABP), a total of N55 billion has been disbursed by the CBN to over 250,000 farmers under the scheme. The ABP was launched in Kebbi State on November 17, 2015 by President Muhammadu Buhari.

    It was designed to create economic linkages between farmers and processors, not only to ensure increased agricultural output. The real sector is seen as the backbone of most great economies. This explains why the Central Bank of Nigeria (CBN) has consistently shown support to the sector.

     

    Support for Real

    Sector Growth

    To unlock the potential of the real sector to engender output growth, value added productivity and job creation, the apex bank recently established a N300 billion Real Sector Support Facility (RSSF).

    The facility will support large enterprises for startups and expansion financing needs of N500 million up to a maximum of N10 billion in key sectors of the economy, especially manufacturing, agriculture and services.

    According to the CBN Governor, Godwin Emefiele, the real sector   targeted  by  the  facility  are manufacturing,  agricultural  value  chain  and  select service sub-sectors.

    He said the facility is expected to improve access to Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and services sub-sectors of the economy.

    According to him, it is also meant to increase output, generate employment, diversify the revenue  base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.

    “The fund is to be managed by the Development Finance Department which shall be responsible for the day-to-day administration of the facility. The activities to be covered under the facility are new, startups and/or expansion projects in the manufacturing, agricultural value chain (non-primary product), services and trading shall not be accommodated under this facility,” the apex bank said.

     

    CRR refunds

    The CBN explained that it would refund Cash Reserve Ratio (CRR) to banks that fund projects in agriculture and manufacturing sectors.

    It said the CBN has been very supportive to banks, adding that they should lend to companies that are doing new capital expenditures and expansions to factories, using some of their Cash Reserve Ratio (CRR) at nine per cent. These, he added, are not short-term loans, but long-term loans of seven years’, two years’ moratorium on principal.

    “It would probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years, which means they would be able to plan. The volatility that they fear for all kinds of risks would be taken out and I think these are very laudable steps in improving and growing the economy,” it said.

  • ABCON backs CBN’s monetary policy, financial stability roles

    The Association of Bureaux De Change Operators of Nigeria (ABCON) has stated its support for the Central Bank of Nigeria’s (CBN’s) financial stability and monetary policy roles.

    In a statement released yesterday, ABCON President, Alhaji  Aminu Gwadabe, said the apex bank under  Governor Godwin Emefiele has achieved financial stability and promoted monetary policy initiatives that have kept the economy on the right path.

    He said CBN’s sound monetary policy decisions have also impacted positively on the banking system and economy, adding that bank customers now have confidence in the financial system. Gwadabe said  the monetary policy decisions of the CBN has helped to lower inflation rate, boosted foreign reserves and stabilised the naira.

    He said the local currency has been continuously strengthened by the CBN dollar/Yuan interventions and other policy initiatives.

    “The monetary policy decisions, Anchor Borrowers’ Programme and foreign exchange interventions are among the measures that brought inflation down from 17.2 per cent in April, 2017 to 11.37 per cent in January 2019. The CBN-led Monetary Policy Committee (MPC) has kept benchmark interest rate steady at 14 per cent for over two years to curb inflation and support the naira,” he said.

    He said CBN’s  registration of more International Money Transfer Operators (IMTOs) from 11 to 60 operators has also boosted  Diaspora remittance inflows into the economy adding that the short-term outlook of the Nigerian economy remains good.

    He also applauded the CBN’s initiatives including the Investors’ and Exporters’ (I&E) Forex window, which has helped to attract foreign capital investment into the economy as well as foreign investors who are committed to unlocking Nigeria’s economic potential.

    Gwadabe said the CBN’s restriction on 42 items that can be produced locally from accessing foreign exchange has not only improved the local production of the concerned items, but led to better utilization of available foreign exchange.

    The ABCON boss also applauded the CBN’s Anchor Borrowers programme, which has led to Nigeria’s self-sufficiency in rice production, moving the country from a net importer of rice to a major producer of rice, supplying key markets in neighboring countries.

    The apex bank, he added, also established a N300 billion Real Sector Support Facility (RSSF) to unlock potentials in the economy and promote real sector growth. The facility is supporting large enterprises for startups and expansion financing needs of N500 million up to a maximum of N10 billion in key sectors of the economy, especially manufacturing, agriculture and services.

    He said the Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and other packages for Small and Medium Enterprises (SMEs), are holding on significantly in the drive to boost the economy and shield it from perceived volatilities in the international economy that is dragging back most emerging markets.

  • Monetary policy, forex interventions keep inflation rate low

    For 18 months running, headline inflation has continued to dip, thanks to measures introduced by the Central Bank of Nigeria (CBN). The monetary policy decisions, Anchor Borrowers’ Programme and foreign exchange (forex) interventions are among the measures that brought inflation down from 17.2 per cent in April, last year, to 11.14 per cent last month. COLLINS NWEZE writes that the single digit inflation target of between six and nine per cent is feasible, with CBN’s determination to sustain the trend.

    ENCOURAGED by the prevailing recovery rate in the economy, the Central Bank of Nigeria (CBN) has reiterated confidence that the country will soon return to single digit inflation rate. The apex bank’s confidence is drawn from the declining inflation rate for more than one year, dropping from 17.2 per cent in April last year to 11.14 per cent last month, as shown in the latest data released by the National Bureau of Statistics (NBS).

    Inflation, interest and lending rates are the three indicators taken seriously by the CBN. The regulator has never lost sight of the implication of a single miscalculation on any of them could cause the people and the economy.

    That explains while the CBN-led Monetary Policy Committee (MPC) has kept benchmark interest rate steady at 14 per cent for over two years to curb inflation and support the naira.

     

    Inflation statistics

     

    Nigeria’s headline Consumer Price Index (CPI) (inflation) has sustained a decline (which started in 2017) for 18 consecutive months. It (inflation) was 11.14 per cent year-on-year in July, according to the NBS report.

    The CPI measures the average change over time in prices of goods and services consumed by people for day-to-day living. In other words, it measures the inflation rate. The inflation report shows that the July figure moderated from 11.23 per cent year-on-year in June.

    Meanwhile, on month-on-month basis, the headline index increased by 1.13 per cent as against 1.24 per cent the previous month, and remains the first month-on-month decline since February.

    Food inflation rose by 12.85 per cent year-on-year in the review period, lower than the 12.98 per cent year-on-year recorded in June.

    “Notably, the highest increase was recorded in the prices of potatoes, yam and other tubers, vegetables, bread and cereals, fish, oils and fat and fruits. On month-on-month basis, food inflation increased at a slower pace of 1.40 per cent, compared to the 1.57 per cent recorded in the previous month”, the NBS showed.

    Core inflation was 10.2 per cent year-on-year during the review period, as against 10.4 per cent in June. The highest increases were reported in the prices of medical services, carpets and other floor coverings, vehicle spare parts, domestic services and household services, pharmaceutical products, paramedical services, hairdressing saloons and personal grooming establishment, dental services, motor cars and fuels and lubricants for personal transport equipment.

    On the average month-by-month basis, the core index increased at a slower pace of 0.81 per cent, 22 basis points below the 1.03 per cent reported in June.

    According to the NBS report, the CPI measures the average change over time in prices of goods and services consumed by people for day-to-day living. The construction of the CPI combines economic theory, sampling and other statistical techniques using data from other surveys to produce a weighted measure of average price changes in the Nigerian economy.

    According to the NBS, the composite food index rose by 12.85 percent in July, compared to 12.98 per cent in the previous month. The figure represents the 10th consecutive decline in year-on-year food inflation since September 2017.

    This rise in the food index was caused by increases in prices of potatoes, yam and other tubers, vegetables, bread and cereals, fish, oils and fat and fruits. On month-on-month basis, the food sub-index increased by 1.40 per cent in July, down by 0.17 per cent points from 1.57 per cent recorded in June. This represents the first-time month on month food inflation has declined since February 2018.

    The average annual rate of change of the food sub-index for the twelve-month period ending July over the previous 12-month average was 17.10 per cent, 0.65 per cent points from the average annual rate of change recorded in June (17.75) per cent.

    CBN Governor Godwin Emefiele said that increased spending from the N9.12 trillion ($25 billion) 2018 Budget and the build-up to next year’s election would lead to more price pressure.

    “There are concerns about inflationary pressure building up towards the second half of the year in part because of the bigger than proposed budget,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said.

     

    MPC input

     

    The CBN-led Monetary Policy Committee (MPC) did not tamper with the existing policy rates at its meeting last month. The committee took measures that will not in any way disrupt foreign capital flows ahead of the 2019 general elections.

    A report from the Economic Intelligence Unit of Access Bank Plc said the committee retained Monetary Policy Rate (MPR) – benchmark interest rate at 14 per cent, given the anticipated expansionary impact of fiscal spending following the signing of the 2018 Budget. The committee also retained the Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30 per cent and maintain the foreign exchange policy, which has brought stability and boosted market liquidity.

    Managing Director, Afrinvest Limited, Ike Chioke, said the MPC kept a delicate balance between growth and price stability, and maintained status quo on all policy rates in order to avoid upsetting the current economic momentum.

    He said: “Our position is on a balance of factors underscored by careful analysis of sustained positive conditions in global commodity markets alongside emerging market risks and continued disinflation amid steady growth momentum.”

    Chioke said that going by the minutes of the MPC meeting in May, members continued to keenly watch developments in the global financial and commodity markets, given the connection to Nigeria’s external position.

    They (MPC members) said: “Although no material change has occurred since the last meeting, mixed market sentiments prevail. In the commodity markets, oil prices remained favourable, though slightly lower at $73/barrel compared with a year-to-date high of $80/barrel as OPEC and its allies, parties to the output cut deal, agreed to boost supply by 1mb/d.

    “Saudi Arabia and Russia with excess output capacities are expected to be the biggest gainers from this decision which is anticipated to occasion a slight downward global oil price correction. Nonetheless, we believe conditions will continue to favour Nigeria’s fiscal and external balance positions. In the same vein, foreign capital reversals have continued unabated in emerging markets though with tapered impact on Nigerian assets.”

    According to Afrinvest, the stable outlook on oil prices is expected to prop the capacity of the CBN to keep defending the domestic currency with the exchange rate of naira to the greenback stabilising at N305.85/$1.

    “Foreign reserves accretion – which slightly moderated 0.6 per cent to $47.4 billion from $47.7 billion as at the May MPC Meeting due to increased forex demand – was supported by improved domestic oil production with daily output at 1.7 million barrel/day,” he added.

    The exchange rate continues to hold steady at N360/$ in both the Investors’ and Exporters’ FX window and parallel markets, supported by stable foreign reserves that have sustained CBN’s intervention amid the exit of portfolio investors.

     

    CBN dollar, Yuan interventions continue

     

    The naira has been continuously strengthened by the CBN dollar and Yuan interventions and other policy initiatives, including the introduction of the Investors’ & Exporters’ Forex Window, which has brought a convergence in the market, keeping the naira stable at N362 to the dollar in the parallel market.

    The economy has also enjoyed a major forex inflow in recent months with over $51 billion recorded in the I&E FX Window. The I&E Forex Window, also called willing-buyer willing-seller window, allows foreign investors to find buyers for their dollars at a mutually-agreed price.

    The introduction of the I&E Forex Window was followed by continuous interventions by the CBN to strengthen Deposit Money Banks (DMBs) and the Bureau de Change (BDC) operators to meet forex demand at the retail end of the market.

    The naira now exchanges at N362 to dollar at the BDC and parallel market.  The official rate for the local currency stood at N305.6 to dollar.

    Already, the CBN has asked banks to submit bids for the Chinese Yuan in line with its determination to meet forex demands at the retail end of the market.

    The CBN sold 69.86 million Yuan (about $10.16 million) in its first auction of the Chinese currency. It recently injected $340 million into the interbank retail Secondary Market Intervention Sales (SMIS). This is in addition to the sale of 69 million Chinese Yuan (CNY) on the spot and short-tenored forwards.

    The figures obtained from the CBN showed that the United States (U.S.) dollar denominated interventions were only for concerns in the agricultural and raw material sectors.

    According to CBN’s Acting Director, Corporate Communications, Isaac Okorafor, the sales in the Chinese Yuan were through a combination of spot and 15-day tenors.

    Okorafor said the exercise, in line with CBN guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials and machinery.

    He identified the bids received from authorised dealers as part of the requests attended to, adding that Renminbi’s availability was sure to ease pressure on the local forex market.

    Okorafor attributed the relative stability in the forex market to the continued CBN intervention as well as the sustained increase in crude oil prices in the international market.

    The CBN spokesman restated the CBN commitment to ensure that all the sectors continue have unfettered access to the forex (in dollars or Yuan) required for businesses.

    Last month, the CBN launched the sale of forex in Chinese Yuan, signaling the consummation of the Nigeria-China Currency Swap Agreement.

    Okorafor said that the sale would be done through a combination of spot and short-tenored forwards, adding that the sale would be conducted through a SMIS window.

    He explained that the window would be dedicated to the payment of Renminbi Denominated Letters of Credit for raw materials, machinery and agriculture.

    He said: “Due to the peculiarity of the exercise, the CBN will not be applying the relevant provisions of its Revised Guidelines for the Operation of Inter-Bank Foreign Exchange Market, that is; the guidelines which direct that special SMIS bids be submitted to CBN through Forex Primary Dealers.

    “The CBN will also not be applying the guidelines which provide that Spot FX sold to any particular end-user shall not exceed 1 per cent of the overall available funds on offer at each SMIS session.”

    On the bid period, Okorafor said authorised dealers were requested to submit their customers’ bids from 9am to 12pm on weekdays, adding that any bid received after the stipulated time would be disqualified.

    On funding, he said that authorised dealers were to debit the customers’ accounts for the naira equivalent of their bids. He added that the CBN would debit the dealers’ current account on the day of intervention to the tune of the Naira equivalent of their bid request.

    Okorafor explained that there would be no predetermined spread on the sale of Yuan by the dealers to the end-users under the special SMIS-Retail window. He said that the dealers would, however, be allowed to earn 50 kobo on the customers’ bids.

    He advised customers who were not willing to accept the settlement terms not to participate in the special SMIS – Retail, adding that Forward Bids would be settled through a multiple-price book building process and would cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS Retail process.

    He also urged customers who were not willing to accept the terms of the forward rate not to participate in the Special Chinese Yuan SMIS Intervention.

    Okorafor said that the regulator reserved the right not to make a sale if it had the impression that the exercise did not provide effective price for the determination of the Yuan to the exchange rate.

    On April 27, the Federal Government signed a $2.5-billion Currency Swap Agreement with the People’s Bank of China. The agreement’s primary aim was to provide adequate local currency liquidity to Nigerian and Chinese industrialists and also assist both countries in their forex reserves management.

     

    Anchor Borrowers’ Programme

     

    In over two years of the implementation of the Anchor Borrowers’ Programme (ABP), a total of N55 billion has been disbursed by the CBN to over 250,000 farmers under the scheme. The ABP was launched in Kebbi State on November 17, 2015 by President Muhammadu Buhari.

    It was designed to create economic linkages between farmers and processors, not only to ensure increased agricultural output of rice and wheat, but also to close the gap between production and consumption.

    The CBN had earmarked N40 billion out of the N220 billion Micro Small and Medium Enterprises Development Fund (MSMEDF) for farmers at a single digit interest rate of nine per cent per annum.

    Under the scheme, smallholder farmers can access loans ranging between N150, 000 to N250, 000 to assist them in procuring necessary agricultural inputs such as seedlings, fertilisers and pesticides, to help boost agricultural outputs and productivity.

    Okorafor said that out of the N55 billion provided for the farmers, 80 per cent or N44 billion was given to rice farmers alone.

    He stated that the need to provide rice farmers with adequate funding was to ensure self-sufficiency in the production of the commodity and to also ensure that Nigeria becomes a net exporter of the product.

    Okorafor said: “Out of the N55 billion that we have spent on the Anchor Borrowers’ Programme, about 80 per cent has gone into rice production; and if you work out that mathematically, you will see that the multiplier effect of that money has been so great.

    “It also goes to underscore the effectiveness and efficiency that the CBN has put into this programme. We have about 250,000, who have also cultivated close to 300,000 hectares of farmland, and you can see the impact on the street.”

    Some of the 3, 509 farmers in Kwara State have begun to benefit from the first phase of the N1 billion 2018 ABP facilitated by the CBN and the Kwara State Government.

    State Governor, Abdulfatah Ahmed, has said the N1 billion loan from the CBN to farmers in the state will boost agribusiness.

    He also said that the loan, which is the first phase of the Kwara/CBN 2018 ABP, would increase food production as well as provide raw materials for industries. According to him, the programme will reduce Nigeria’s negative balance of payments on food imports.

    The governor’s Special Adviser on Agriculture & Rural Water Support, Anu Ibiwoye, said that 500 maize farmers, 350 soya beans farmers, 250 cassava farmers and 150 rice farmers will get various sums as loans under the scheme.

    He said that each farmer would receive farm inputs depending on the size of his farm.

    Ibiwoye said: “Let me remind you today that this empowerment that you will receive is coming to you as loans. We hope that these inputs will be judiciously used and the loans paid back so that other farmers can benefit.

    “The farmers shortlisted for the phase one of the scheme will begin to receive their inputs starting immediately after the capacity building session today.”

    The ABP thrust is the provision of farm inputs in kind and cash to smallholder farmers to boost production of rice, maize, soya beans and cassava, as well as to stabilise inputs supply to agro-processors and address the country’s negative balance of payments on food.

    Likewise, about 6, 670 rice farmers in Plateau State have received seedlings, fertilisers, herbicide, pesticide, water pumping machine and other rice farming inputs from the ABP introduced by the Federal Government.The Plateau State chapter of Rice Farmers Association of Nigeria (RIFAN) said that farmers were receiving their items for the past three weeks at the secretariats of Plateau Agricultural Development Programme (PADP) in Jos, Shendam and Mangu local government areas.

    The Nigerian Incentive-Based Risk Sharing System for Agricultural Lending said about 250,000 direct jobs and 1.25 million indirect jobs have been created under the ABP.

  • NECA: monetary policy too weak to tame spiraling inflation

    The Nigerian Employers’ Consultative Association (NECA) has said the Central Bank of Nigeria’s (CBN’s) monetary policy is too weak to significantly reduce inflation.

    Speaking with The Nation on the sideline of NECA’s 61st Annual General Meeting (AGM) in Lagos, the President, Mr. Larry Ettah said the continued existence of stagflation called for reduction in the cost of borrowing.

    Ettah said the government’s 68.50 per cent recurrent expenditure as a percentage of total Federal Government expenditure in the 2018 budget is an unhealthy expenditure pattern and an indication that the government is yet to accord infrastructural improvement, the life wire of an economy, the importance it deserves through adequate fiscal support.

    He said it was worrisome that for the third consecutive year, the rising cost of debt servicing was in the top three allocations in the budget and, if not checked, debt servicing might soon return to the pre-debt relief period.

    He said though the country’s debt level as a percentage of the gross domestic product (GDP) seems in order, it considers the debt to revenue ratio unhealthy and unsustainable.

    Ettah said the Federal Government must tame its appetite for debts backed by the World Bank. He pointed out that global bank in its recent Global Economic Prospects Report noted with dismay that the optimism over Nigeria’s economic recovery is tempered by concerns over huge debt servicing obligations and continuous foreign exchange (forex) controls.

  • NBCC advises CBN on monetary policy plans

    Nigerian-British Chamber of Commerce (NBCC) has urged the Central Bank of Nigeria (CBN) to sustain a monetary policy aimed at increasing capital inflows, encouraging domestic lending and enhancing production for export.

    The Chamber also asked the apex bank to focus more on policy that will drive infrastructural development, enhance tax compliance and ensure a favourable environment for SMEs in the country.

    NBCC President, Prince Dapo Adelegan, who disclosed this during the Chamber’s quarterly review of the economy identified decline in economic activities, increase in the rate of unemployment and high operating cost as some of the effects of the restriction earlier placed on foreign exchange.

    On foreign portfolio investment, Adelegan said the foreign inflow dropped from N53.20 billion in April, last year to N14.52 billion in April, this year.

    He noted that many investors had left the country due to foreign exchange restriction and economic downturn.

  • Budget 2016 (3) Budget and monetary policy

    Budget 2016 (3) Budget and monetary policy

    Thanks to a pirrouette on foreign exchange, a cheerful prospect

    If the slump in global oil prices stood out year 2015 as one of reckoning for the economy, it was also a year of unprecedented activism by the apex bank. Several factors were to define the bank’s activism: First, was the need to preserve the foreign reserves in the face of severely constrained inflow of foreign earnings and the resultant pressure on the Naira. The second was increasing dollarisation of the economy; third was the mounting concerns about costs of funds; and lastly the liquidity crunch in the aftermath of the apex bank’s monetary policies.

    To address the first, the Central Bank of Nigeria (CBN) in June, last year, removed 41 goods and services from the list of items valid for foreign exchange through the official window. Traders in the items were directed to source their foreign exchange requirements from autonomous sources to pay overseas suppliers. Happily, the Federal Government has reversed the order to its former state. This negates the order in August that banned the payment of cash into domiciliary accounts, although it claimed that the measure stemmed from the refusal by banks to accept payment of foreign currencies into domiciliary accounts. Those with foreign currency cash lodgements made prior to the date of announcement were availed the option of either to withdraw their foreign currency cash or to be paid the Naira equivalent. Happily again, this has also reverted to the old order.

    By November, the CBN announced a major shift in monetary policy with the reduction in the Monetary Policy Rate (MPR) from 13 per cent to 11 per cent. It also slashed the Cash Reserve Ratio (CRR) from 25 per cent to 20 per cent. Both measures were said to have been borne of the need to bolster the liquidity in the aftermath of palpable liquidity crunch in the economy while also seeking to ensure that more funds are channelled to priority sectors of the economy. CBN Governor Godwin Emefiele identified “the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment” as necessitating the measures.

    According to him, “the MPC was particularly concerned that the previous liquidity injections embarked upon through lowering of the CRR in the last MPC has not transmitted significantly to improved credit delivery to key growth and employment in sensitive sectors of the economy. Rather, more credit was given to sectors with low employment elasticity.”

    The above background obviously heightened expectations of matching fiscal policies in the current year. We are therefore not surprised that these broad issues constituted the broad thrust of Budget 2016 despite the severe constraints of revenue. By this, we do not just refer to the unprecedented N6.04 trillion budget outlay but the quantum leap in capital allocation. In this, we are particularly enthused that a considerable chunk of funds were allocated to Works, Power and Housing – N433.4 billion; Transport – N202 billion; Special Intervention Programmes – N200 billion and Defence – N134.6 billion – sectors that are critical to any prospects of the economy’s quick turnaround as well as to the administration’s quest to diversify the economy.

    Overall, we see the main challenge for the year as the real sector where activities remain at their lowest ebb. If Nigerians expected that the lowering of the MRR would moderate the cost of funds, the impact of the measure remains to be seen at this time. The same applies to the reduction of the CRR expected to boost lending to the so-called priority sectors. Although we must also admit that the situation has not been helped by the hitherto restrictive foreign exchange policies of the CBN which were generally adjudged to have hampered the operations of the real sector. To the extent that the challenge of making the real sector the pivot of the economy subsists, one of the major issues that the monetary and fiscal authorities would have to contend with is evolving a framework that balances the needs of the sector with the need to preserve the nation’s increasingly limited inflow into the foreign reserves.

    All said, it is heartwarming that the CBN has begun to hearken to the cries to liberalise access to foreign exchange.

     

  • SNB keeps monetary policy unchanged

    The Swiss National Bank left its monetary policy unchanged as widely expected by economists last week. The SNB maintained the target range for the three-month libor unchanged at between -1.25 percent and -0.25 percent. The interest rate on sight deposits with the SNB remained at -0.75 percent and the exemption thresholds remain unchanged, the bank said in a statement.

    The SNB reiterated that the Swiss franc is significantly overvalued and should continue to weaken over time. It will remain active in the foreign exchange rate, as necessary, in order to influence monetary conditions.

    Shop now Try the perfect shave. Buy a starter kit now! ads by Swoop Further, the bank substantially downgraded its December inflation forecast as the sharp fall in oil prices and the appreciation of the franc after the removal of currency ceiling moves inflation further into negative territory.

     

     

     

     

  • CBN may keep 12% interest rate as MPC meets tomorrow

    CBN may keep 12% interest rate as MPC meets tomorrow

    The Central Bank of Nigeria (CBN) is expected to keep the interest rate unchanged at 12 per cent as the Monetary Policy Committee (MPC) meets tomorrow and next.

    If the MPC keeps the rate unchanged, it will be the 18th time in a row, it is taking such stance in an effort to control inflation and support the naira.

    This week’s MPC meeting will be the second chaired by the new CBN Governor, Godwin Emefiele, and will be closely watched by foreign investors and analysts.

    The former managing director of Zenith Bank, struck a dovish tone on rates two days after taking office in June, saying he would seek a gradual reduction in borrowing costs, which have been stuck at 12 per cent since late 2011.

    That is much higher than the 5.75 per cent in South Africa, which Nigeria overtook to become Africa’s largest economy earlier this year, and 8.50 per cent in Kenya.

    Inflation  rose to a 10-month high of 8.5 per cent in August, closer to the CBN’s upper limit of nine per cent, after rising for five straight months this year on higher food prices and excess liquidity.

    “Higher risk premiums and fiscal profligacy related to the election will keep pressure on the currency and price growth and Emefiele and his team will not want to exacerbate that by loosening policy too aggressively,” said Matthew Searle, sub-Saharan Africa Analyst at Business Monitor International.

    Also, an Economist at Vetiva Capital, Adedayo Idowu, said with the compression in fixed-income yields, as short-tenor maturities head south below the 10 per cent levels, the risks of negative real rates on Nigerian assets will again resurface.

    Meanwhile analysts at Renaissance Capital (RenCap), an investment and research firm,  have pre-dicted interest rate cuts by December next year to allow credit growth and boost real sector production.

    Global Chief Economist at RenCap Charles Robertson said in the “Sub Saharan Africa Macro Strategy” released on Monday,  that such step would allow interest rate move from high single digit, to mid-teens.

    “Post-elections, we expect interest rate cuts in the second-half of 2015, which we think will allow year-on-year credit growth to pick up from current high single-digits to the mid-teens. This is positive for equities and the banks.

    “Equally, it should give a lift to the consumer, as the effect of any pre-election wage hikes dissipates. We believe expansionary fiscal policy in 2015 is unlikely, due to capacity constraints and a desire to keep debt levels low,” he said.

    He said the 2015 elections, though very near, should not distract investors. “Yes, elections are almost upon us in February, 2015, but we do not think that should detract from Nigeria’s otherwise solid macro credentials – especially given our view that the electoral process and outcome will be relatively stable,” he said.

    Robertson explained that Nigeria is well ahead of the other countries under its coverage, given its improving external reserves position  which cover nine to 10 months imports,  and a small fiscal deficit of one to  two per cent of GDP.

    He said a recovery in the oil sector has led to stronger growth, which has been upwardly revised to 6.3 per cent and 6.5 per cent in 2014  and 2015, against prior forecasts of 5.7 per cent and 5.6 per cent.

    He said: “We prefer Nigerian banks to Kenyan banks on a valuation basis. Admittedly, the operating environment in Nigeria is tougher against other key Sub-Saharan Africa markets and this has led to a lower sector-wide Return on Equity.

    “The good news is, we see a recovery from December 2015, when we expect Nigeria’s monetary policy to ease, which is banks-positive.”

  • Monetary policy boosts pension fund’s investment

    RETURNS on pension fund investment in treasury bills and deposits increased in the second quarter of last year, according to a report by the National Pension Commission (PenCom).

    Part of the report reads: “In pursuit of the restrictive monetary policy, the Cash Reserve Ratio (CRR), the Liquidity Ratio and net open position were maintained at the first quarter levels of 12 and 30 and one per cent to contain inflationary pressure on the economy.

    “The interest rate developments in the money market showed mixed results. While average savings deposit rate increased from 1.73 per cent in the first quarter to 2.04 per cent in the second quarter, all other rates on deposits of various maturities fell from a range of 5.05 – 8.39 to a range of 4.71 – 7.72 per cent.

    ‘’Following the increase in the prime and maximum lending rates in the quarter, the spread between the weighted average term deposit and maximum lending rates increased by 1.34 per cent to 17.98 per cent from 16.64 per cent.”

    The inter-bank segment of the money market witnessed some increases in the rates of some instruments. For example, the weighted average interbank call rate, which was 11.35 per cent as at the end of the first quarter increased by 0.34 per cent to close at 11.69 per cent in the second quarter. Similarly, the Nigeria Interbank Offer Rate (NIBOR) for the seven and 30-day tenors increased from 11.83 3 and 12.39 per cent in the first quarter to 12.19 and 12.46 per cent in the second quarter, it said.

    Furthermore, the primary market segment for the auctioning of government’s securities showed that Treasury Bills (NTBs) of 91,182 and 364-day tenors, amounting to N1,000.50 billion, N1,752.99 billion and N1,000.50 billion, were offered, subscribed to and allotted.

    The bid rates ranged from 8.50 to 15.02 per cent, for the 91-, 182- and 364-day tenors, while the stop rates ranged from 10.30 to 11.79 per cent. However, the total amount of NTBs offered and the level of subscription for all the tenors showed an impressive patronage of government securities at the primary market as the volume of subscription outstripped total amount offered by 75.21 per cent.

    The foregoing indicated positive real returns on pension fund investment in treasury bills and deposits of various tenors during the quarter under review given the headline inflation rate of 8.40 per cent.

    Meanwhile, the bond market witnessed some improvements in the second quarter of last year as the total amount offered, subscribed to and allotted stood at N285.00 billion, N607.05 billion, and N285.00 billion.

    Thus, the level of subscription was 113 per cent in excess of the total amount offered. The increased investment in FGN Securities could be explained by investors’ confidence in the bond market and the relatively high yield on these securities relative to money market instruments.

    Activities in the stock market however showed mixed results as reflected in some stock market performance indicators.

    The volume of traded shares decreased from 31.80 billion shares in the first quarter to 26.5 billion shares in the second quarter, representing a decrease of 16.60 per cent.

    Similarly, the number of deals decreased from 383,014 in the first quarter to 380,946 deals, representing a decrease of 0.54 per cent.

    However, the value of traded shares increased from N254.98 billion in the first quarter to close at N336.59 billion in the second quarter, representing an increase of 32.01 per cent. The banking sector stocks were the most actively traded with a volume of 12 billon shares valued at N110.50 billion in 87,743 deals.

    Other stock market performance indicators revealed mixed results as market capitalisation decreased from N15.22 trillion in the first quarter to N15.80 trillion, representing a decrease of 3.80 per cent. However, the NSE All-Share Index increased from 33,536.25 in the first quarter to 36,164.31 as at the end of the second quarter, representing an increase of 7.84 per cent, the report stated.