The Central Bank of Nigeria (CBN) has vowed to recover all its intervention loans in excess of N10 trillion, given to different sectors of the economy, as it insists on earlier stance of pulling out of direct development financing.
Olayemi Cardoso, the CBN governor, reiterated the apex bank stance on Tuesday while announcing the outcomes of the two-day meeting of the Monetary Policy Committee (MPC), which raised the monetary policy rate (MPR) by 400 basis points to 22.75 percent.
The committee equally adjusted the assymetric corridor around the MPR to +100/-700 from +100/-300 basis points, jacked up the Cash Reserve Ratio from 32.5 percent to 45 percent, but retained the liquidity ratio at 30 percent.
…says distortions masking naira’s true value
Cardoso said the the committee said members were more concerned about the continued inflationary and exchange rate pressures as against pursing growth, which would in any case be hampered by the former if not tackled.
He said: “Members were concerned about the persistent rise in the level of inflation and emphasised the committee’s commitment to reverse the trend as the balance of risk leaned towards rising inflation.
“The committee, however, acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation.”
Recent report by the National Bureau of Statistics indicated that headline inflation rose to a new record high of 29.90 percent in January from 28.92 percent in December 2023.
Cardoso said the major factors driving inflationary pressure were exchange rate pass-through, rising cost of energy, high fiscal deficits, and lingering security challenges in major food-producing areas. According to him, there are equally 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,” he said.
He said beyond these factors, the trillions of naira the CBN spent on interventions had equally contributed to the present heightened inflationary pressures in the economy and had caused a lot of distortions in the system.
According to him, those were not properly monitored in the past due to the fact that they were outside the CBN core mandate of price and exchange rate stability and as such it lacked the capacity to effectively implement those initiatives, even if they meant well.
He said: “I want to reiterate that the central bank is moving away from those interventions and quite frankly, the reason should not be so far fetched
“Here we are, everybody is concerned about inflation. Everybody’s concerned about price stability. If we know that that is the concern of everybody and if we know that this is affecting everyone, then why won’t we will put in everything we have to ensure that we fight that monster?
“The intervention has two dysfunctions, as far as I’m concerned from Central Bank’s base, one is that it takes away a lot of your time for something that really and truly, you do not have the expertise to do and two, it also, if not carefully handled, creates a lot of distortions in your economy through inflow of money supply.
“The interventions that took place in the recent past were estimated in excess of N10 trillion. I’m not talking about ways or means. I’m talking about the interventions that you just asked – about over 10 trillion naira. What was the budget of the federal government of Nigeria? What was the budget of the largest state in Nigeria? Do the math and it will tell you the extent of damage, too much of what may appear to be good things can do to an economy.
“So for me, it’s a major issue, we’ll be naive to say that we are not going to get directly involved in interventions, those that are out there, we have to properly monitored them to ensure that they come back in, and we already doing that and with various degrees of success. As some point in time, in the interest of transparency, those figures will be made public… that’s has to happen.
“In addition to that, one is also a believer that for those who have the capacity to handle these kinds of kinds of interventions, then we can partner with them. But the time where we can have failed interventions in Nigeria is over.
“There’s no more wiggle room to take on interventions that have a great potential to fail and do not get down to the people who they were intended to in the first place.”
Cardoso also reiterated his earlier comment that the naira is presently undervalued and blamed what he called distortions without providing any explanation, but said they were being throughly investigated and that culprits will be punished.
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