The Central Bank of Nigeria (CBN) on Friday retained its benchmark interest rate known as the Monetary Policy Rate (MPR) at 11.5 percent, as inflationary pressures remain despite a recent slowdown.
This comes not as a surprise as analysts in the financial services sector had expected a hold following weak growth amid declining inflation.
The CBN has kept the MPR at 11.5 percent since September 2020 from 12.5 percent previously.
Nigeria’s inflation dropped to 17.01 percent in August 2021 from 17.3 percent in July 2021 according to data from the National Bureau of Statistics (NBS). The rate however remains higher than the CBN’s preferred band of between 6-9 percent.
Read also: CBN’s hammer dangling over owner of abokifx over exchange rate breaches
At the end of the meeting, members unanimously voted to retain all policy parameters to allow deployed measures to continue to support growth, which it projects at 2.86 percent for 2021, slightly lower than the Federal Government’s 3 percent target.
Other considerations at the meeting included plans to put measures in place to limit the potential impact of normalisation of global monetary policy on the domestic economy.
The CBN also disclosed plans to contain fraudulent FX demand and ensure a properly functioning structure for the FX market.
According to the MPC, Nigeria’s only recognised exchange rate is the I&E, where legitimate FX demands are met. The monetary authority also noted that selling FX from the reserves to BDCs is not a global best practice. Therefore, it emphasised that the decision to stop sales to the sector would not be reversed.
The CBN disclosed that it will go after illegal currency dealers, including individuals who illicitly obtain dollars from banks in the guise of having BTA and PTA-related needs.
The apex bank also confirmed investigations into AbokiFX, its owner, and complicit companies for allegedly participating in FX manipulation, illegal fixing of USDNGN rates, and economic sabotage.
“All in, while we expect the outcome of the meeting to drive some cautiousness in the FX market, a lot more will have to be done to curtail the widening premium over I&E driven by speculation in the parallel market,” analysts at Cardinal Stone Partners said.
“We also note the need for increased FX supply to clear existing backlogs of dollar demand and restore relative calm in the market,” the analysts said.
