The Central Bank of Nigeria (CBN) yesterday resolved to retain the Monetary Policy Rate (MPR), the benchmark interest, at 27.50 per cent, with the asymmetric corridor of +500/-100 basis points around the MPR.

The apparent halt in the bank’s tightening regime came against the backdrop of recent stability in the Foreign Exchange (FX) market with the resultant appreciation of the exchange rate and gradual moderation in the price of Premium Motor Spirit (PMS).

The central bank also left all monetary policy parameters unchanged, including the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 50 per cent, and that of Merchant Banks at 16 per cent as well as the Liquidity Ratio (LR) at 30 per cent.

Addressing journalists at the end of the two- day meeting of the Monetary Policy Committee (MPC) in Abuja, CBN Governor, Mr. Olayemi Cardoso, said the committee was unanimous in its decision to hold rates at current levels, having expressed satisfaction with recent macroeconomic developments, which were expected to positively impact price dynamics in the near to medium term.

Cardoso also said there had been greater confidence in the markets, a key ingredient that was missing in the equation.

He also said CBN was now in a better position to begin the process of moderating rates, adding that stability remains important, and “if investors do not see stability, they do not come to those markets”.

He said the naira was a lot more competitive, with increasing interest from international investors.

Chief Executive Officer of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, described CBN’s decision to pause the monetary policy rates as a welcome development, saying it is in line with the expectations of most financial analysts.

Cardoso said MPC was particularly impressed by the stability in the FX market.

He, however, said members were not oblivious of the risk of persisting inflationary pressures driven largely by food prices.

The CBN governor said the committee recognised the recent rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics (NBS), which reviewed the weights of items in the consumption basket to reflect current consumption patterns.

Cardoso, who read the committee’s communique, added that the federal government had continued to improve security in food producing communities. Supported by other measures to enhance food supply, he said food prices were expected to continue to moderate.

He also said the committee agreed unanimously to continue to monitor both domestic and global developments to identify emerging risks and propose appropriate policy responses to mitigate the effect of associated shocks to the Nigerian economy.

The MPC further reiterated the benefits of increased collaboration between the monetary and fiscal authorities, demonstrated at the recent Monetary Policy Forum organised by CBN.

The committee highlighted the benefits of the improvements in the external sector to exchange rate stability, including the convergence of rates between the Nigeria Foreign Exchange Market (NFEM) and the Bureau de Change (BDC), and urged the bank not to relent in its effort to boost market liquidity.

It acknowledged recent measures introduced by the central bank, including the Electronic Foreign Exchange Matching System (B-Match) and the Nigeria Foreign Exchange Code, to foster transparency, ethics and credibility in the market.

The committee was of the view that following major policy measures undertaken by the monetary and fiscal authorities, the flow of foreign direct and portfolio investments as well as diaspora remittances were expected to increase as investor and stakeholder confidence improved.

Cardoso also pointed out that the improvement in oil production, which was 1.54 million barrels per day (mbpd) at the end of January 2025, will enhance the current account position of the balance of payments with the attendant positive impact on external reserves.

He stated that despite pockets of macroeconomic headwinds confronting the Nigerian economy, the banking system had remained robust and resilient.

MPC, however, urged the apex bank not to relent on its keen surveillance of the banking system, especially at a time of significant exogenous and endogenous headwinds. It called for close monitoring of the ongoing recapitalisation of the banking system to ensure the injection of quality capital as envisaged in the framework.

MPC acknowledged the various policies by CBN aimed at anchoring inflation expectations, easing exchange rate pressures, deepening financial inclusion, and improving the transmission mechanism of monetary policy.

He said while the non-oil sector was expected to continue to lead output growth in the near term, sustaining the increase in oil production will enhance the contribution of the oil sector to GDP growth.

Cardoso further disclosed that the external reserves remained robust at $39.4 billion as of February 14, translating to an import cover of 9.6 months for goods and services.

In addition, he said the balance of payments had remained strong with a positive current account balance of $6.06 billion as at the end of the third quarter of 2024.

Cardoso said the naira had become more competitive, adding that rates have moderated while the differential between the official and black market has become insignificant following recent reforms.

He said measures had been taken to ensure that the FX market remained deep, open, and transparent, as well as guarantee easy entry and exit.

The CBN governor said, “There have been a series of measures, which have been taken from the outset, including, of course, wiping out the multiple exchange windows, which, quite frankly, if you recall, have cost the federal government, have cost this country an enormous amount of money. I mean, there we were in the past talking about the losses from the subsidy on PMS of between two and three per cent of GDP, while the actual losses from foreign exchange, multiple windows and subsidies, if you like, is even more than that.

“So, our ability to close those gaps and ensure that we have a system that is more open, more transparent, our ability to take on the whole issue of diaspora remittances and IMTOs at some point in time…”

He said the several measures taken by the CBN had yielded positive outcomes.

He said, “What I will say, quite frankly, is that in measures we have taken so far in terms of orthodox monetary policies, we can see have begun to yield fruit. We can see that accretion to reserves has been consistent, and at one point in time, may I remind everybody that we achieved the highest level of reserves in the past three years at one point in time.

“We also continued to see inflation gradually beginning to decelerate. We can see that there’s greater confidence in our markets, and that was something that was missing when we started this journey, and we can see that confidence is gradually returning to our markets, which shows that we are on the right course now.

“Obviously, as that happens, we are in a better position to begin the process of moderating rates because stability is very important, and if investors do not see stability, they do not come to those markets.”

Cardoso added, “So, our own objectives have been and will continue to be to achieve stability in the foreign exchange markets and the financial markets. That’s our objective. And as long as that happens, we are confident that we will begin to see more investments coming in, which should spur the badly needed growth.”

CPPE Welcomes Development

CPPE applauded CBN’s decision to pause the monetary policy rates, saying it is a step in the direction.

Chief Executive Officer of the organisation, Dr. Muda Yusuf, said the decision was in line with the expectations of most financial analysts.

Yusuf said the recently rebased inflation computation by the National Bureau of Statistics showed a decline in inflation rate to 24.48 per cent, which is currently less than the MPR.

He said, “I think that it makes sense to retain the MPR, CRR and the Liquidity Ratio so that we do not further exacerbate the pressure of interest rate on businesses and citizens that have exposures to the banks.”

He also said Nigerians should now begin to see moderations on these rates going forward because it was also not appropriate to have MPR now being higher than inflation rate.

Yusuf stated, “It is tightening the noose too much on the investors in the economy.

“Additionally, I believe that cash reserve ratio of 50 per cent is too high for the economy. We will like to see gradual relaxation of the tightening mode on the MPR and the CRR in the next MPC meeting.

“There are indications that prices are beginning to drop. We have seen a slight drop in the price of diesel, PMS, pharmaceutical products and some food items.

“We are likely to see further drops in the prices of other products if we maintain the stability in the exchange rate.”

According to Yusuf, the CRR at 50 per cent of the CBN is the highest in the whole world.

He said, “I do not think we can continue with that kind of trajectory. There is no justification for it. Our macroeconomic condition is not as bad to warrant such an outrageous level of CRR.

“The closest to Nigeria’s CRR is Turkey’s 25 per cent. So, it should be reduced.

“In addition, the asymmetric corridor of plus 500 basis points is also too high. If the MPR is already at 27.50 per cent, why should we have asymmetric corridor at plus 500 basis point? It is too high.”

Yusuf said those were the things that needed to be reviewed because to continue on the trajectories would practically disconnect the financial system from the real economy.

“It will have a very serious impact on economic growth. So, there is a need for serious rethink on these tightening measures going forward,” Yusuf said.

SOURCE: THIS DAY