The Central Bank of Nigeria (CBN) has reaffirmed its commitment to a tight monetary policy stance as it continues to grapple with persistent inflationary pressures. In a bid to tame rising prices, the Monetary Policy Committee (MPC) decided to raise the Monetary Policy Rate (MPR) by 25 basis points to 27.50% at its 298th meeting.
CBN Governor Olayemi Cardoso emphasized the bank’s unwavering determination to combat inflation, stating, “There’s no going back on that. And as I’ve said at previous fora, we are going to deploy everything in our arsenal to ensure that we are able to tame it.”
The MPC’s decision to raise the MPR is part of a broader strategy to reduce inflationary pressures. By increasing the cost of borrowing, the central bank aims to discourage spending and investment, thereby slowing down economic activity and moderating price increases.
Addressing Underlying Issues
While monetary policy plays a crucial role in managing inflation, Cardoso acknowledged the need to address underlying structural issues. He highlighted the importance of improving food security, enhancing infrastructure, and stabilizing the foreign exchange market.
“The Committee also noted the role of rising energy prices on the general price level due to its impact on factors of production. The recent increase in the price of Premium Motor Spirit (PMS) has also impacted the cost of production and distribution of food items and manufactured goods,” Cardoso said.
Other key decisions included maintaining the asymmetric corridor around the MPR at +500 to -100 basis points, keeping the Cash Reserve Ratio (CRR) for deposit money banks at 50%, and the liquidity ratio at 30%. These measures are designed to reduce inflationary pressures, which have remained stubbornly high despite earlier attempts at stabilization.
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Foreign Exchange Market and Economic Outlook
The CBN Governor also addressed the challenges facing the foreign exchange market, emphasizing the bank’s commitment to ensuring stability. He noted that the country’s external reserves had risen marginally to $40.88 billion, providing a cushion against potential shocks.
Looking ahead, Cardoso expressed optimism about the outlook for the Nigerian economy. He suggested that the impact of the tightened monetary policy would become more apparent in the first quarter of 2025. However, he cautioned that the timeline for policy implementation to take effect can vary.
“Now, it’s also important for people to understand that there’s a timeline between when you implement policies and when they have impact. And that timeline, quite frankly, can be, you know, anything up from six months to nine months to a year,” he explained.
If You Ask Me
The CBN’s decision to maintain a tight monetary policy stance reflects a delicate balancing act between controlling inflation and stimulating economic growth. As the global economic landscape continues to evolve, the central bank will need to carefully assess the potential impact of its policies on both domestic and international factors.
