CBN raises MPR by 400 points to 22.75%, approves sale of $20,000 forex to BDCs 

The Central Bank of Nigeria has raised the monetary policy rate (MPR) by 400 basis points to  22.75 per cent.

This is the highest level we have seen the MPR topping above 18.75 per cent  which it had remained since the last MPC meeting on the 24th and 25th of July 2023.

The apex bank also increased the Cash Reserve Ratio to 45 per cent and maintained the liquidity ratio at 30 per cent while the Asymmetric Corridor was also  raised to +200/-700.

Addressing financial journalist after 293rd  bankers committee meeting on Tuesday, the CBN Governor, Olayemi Cardoso said the increment was necessary to address rising inflation in the country especially as the prior rate increases were not substantial enough to impact on inflation rate.

According to him, “the decisions were centered on the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.

He noted that the decision to transit to an inflation targeting framework as 

essential to addressing the persistence of inflationary pressures in the economy 

and commended the fiscal authority for their invaluable support.

Cardoso also stated members considered various scenarios including whether to hold or hike policy and concluded that inflation could become more persistent in the medium term and pose  more regulatory issues if not well-anchored.

Nigeria’s inflation rate is currently 29.9 per cent in January 2024 from 28.92 per cent in December 2023 and this expected to worsen in the short to medium term.

He said the major factors driving inflationary pressure remain exchange rate pass-through, rising cost of energy, high fiscal deficits, and lingering security challenges in major food-producing areas. 

In addition, he said, “global factors such as tight financial conditions and trade disruptions from ongoing geopolitical tensions, remain significant upside risks to the outlook for domestic inflation. Staff forecasts therefore indicate that inflation will remain on an upward trajectory in the near term before commencing a descent. 

Real GDP growth improved in fourth quarter 2023 to 3.46 per cent, compared with 2.54 per cent in the previous quarter, driven by improvements in both the oil and non-oil sectors.

The recent improvement in the oil sector was due to the combined impact of increase in crude oil production and a relatively high price in fourth quarter of 2023. 

To further ensure the stability of the banking system, the apex bank  called on the Bank to increase system buffers by recapitalising the banks to improve resilience against potential risks.

The committee also enjoined the Bank to strengthen surveillance and compliance regarding its earlier guidance on the application of foreign exchange revaluation gains. 

He further stated that non-monetary factors driving inflation such as the 

persisting insecurity and infrastructural deficits and noted the role of fiscal policy 

in addressing these shortfalls, while reiterating the commitment of monetary 

policy support. 

In this regard, the CBN Governor applauded fiscal policy initiatives towards reducing the cost of living for ordinary Nigerians, including the ongoing efforts to improve food supply and provide mass transit CNG buses to ease the cost of transportation; and the civil service reforms to improve the efficiency of government amongst others. 

Also, the apex bank has approved the sale of foreign exchange to the eligible Bureaux De Change (BDCs) meet the demand for invisible transactions.

The apex bank said the sum of $20,000 is to be sold to each BDC at the rate of N1301 to a dollar which is  representing the lower band rate of the executed spot transactions at the Nigeria Autonomous Foreign Exchange Market (NAFEM) for the previous trading day as at in February 27, 2024.

In a statement signed by the Director Trade and Exchange Department, Dr Hassan Mahmud said All eligible BDCs are directed to make naira payment to the designated CBN foreign currency deposit naira account and submit confirmation of the payment with other necessary documentation for disbursement at the appropriate CBN branches.

It said that BDCs are allowed to sell to end- users at a margin not more than  one per cent above the purchase rate from the CBN.