CBN says to maintain orthodox policies in 2025

The Central Bank of Nigeria (CBN) will maintain orthodox monetary policy tools, instead of direct quasi-fiscal interventionist activities, for implementing monetary policies in 2025.

The CBN stated this in a report titled, “Monetary Credit Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2024-2025”, published on Tuesday.

“Furthermore, the CBN will implement an explicit inflation-targeting framework to enhance the effectiveness of monetary policy during the period. Under the new monetary policy implementation framework, the CBN will provide forward guidance, enhance transparency, and maintain effective communication with the public to anchor expectations and build trust among stakeholders,” the report stated.

In May 2024, Olayemi Cardoso, the Central Bank Governor stated that the Bank would assume orthodox monetary policy tools under his leadership, contrary to what was obtainable with his predecessor.

“Let’s face it, for a long period, the CBN did not embrace orthodox monetary policies. We want to go back to using an orthodox method, and it will take us to where we want to go,” Cardoso said in an earlier interview.

This year, the Monetary Policy Committee has hiked the Monetary Policy Rate by a total of 800 basis points since February 2024, alongside adjustments to other monetary tools, to combat rising inflation.

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The MPR, also known as the benchmark interest rate, was raised to 26.75 percent from 26.25 percent at the last Monetary Policy Committee meeting held in July 2024.

In comparison, the MPR was only hiked by a total of 225 basis points in 2023. The governor also allowed the naira to trade freely at the official market and has resumed dollar sales to BDCs.

Foreign exchange (FX) inflows into the economy jumped by 57 percent in one year, stabilising the Naira.

Nigeria recorded $8.86 billion in FX inflows in February 2024, higher than $5.66 billion in the corresponding period of February 2023, representing a 57 percent jump over the period, BusinessDay earlier reported.

Analysts attributed the rising forex inflows to consistent policies of the Central Bank of Nigeria (CBN) which have spurred investor confidence and instilled market stability into Africa’s most populous nation.

The report further stated that the CBN would continue to use Open Market Operations as the main tool for liquidity management as well as discount window operations and repurchase transactions.

“The conduct of OMO would involve auctions and sale or purchase of CBN Bills and other designated instruments as may be prescribed from time to time by the CBN. The objective would be to maintain banking system liquidity at levels consistent with dynamic monetary policy stance by impacting the reserves of authorised and eligible participants in the market,” it said.

The Cash Reserve Ratio (CRR) for deposit liabilities, which stood at 32.5 per cent and 10.0 per cent for commercial and merchant banks respectively, shall continue to apply, the report stated.