CBN stays hawkish as food, petrol prices remain high

…External reserves rise to $40.88 billion

…Rate hike seen slowing down growth

The Central Bank of Nigeria (CBN), on Tuesday, maintained its hawkish stance, raising the interest rate by 25 basis points to rein in stubborn inflation.

At the end of the Monetary Policy Committee meeting, the CBN raised the benchmark interest rate to 27.50 percent due to high food and petrol prices.

This is the sixth the apex bank would be raising rates this year.

“While food prices remain a key contributor to the uptick, members commended the efforts of the Federal Government for the improved security, especially in the North-East of the country, which would likely improve food production,” Cardoso, who heads the MPC, said.

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“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 also revealed that external reserves rose marginally to $40.88 billion as at 21st November 2024 from $40.06 billion at end-October 2024 and can finance 17 months of imports.

Other Key Decisions

The MPC also retained the asymmetric corridor around the MPR at +500/-100 basis points. It likewise retained the cash reserve ratio (CRR) of deposit money banks at 50.00 percent and merchant banks at 16 percent.

It also retained the liquidity ratio at 30 percent. According to Cardoso, MPC members noted with satisfaction the continued resilience and stability of the banking system despite significant exogenous and endogenous headwinds.

They, however, called on the CBN to maintain its close surveillance on the banking system to sustain compliance with regulatory thresholds and continued health of the industry.

Inflation, FX pressures to abate early 2025

According to Cardoso, the CBN will deploy every possible ‘orthodox’ strategy to tame inflation, with a firm assurance that ongoing monetary tightening measures will begin to yield positive results early next year.

Cardoso spoke during a press conference in Abuja to announce the outcomes of the two-day meeting of the Monetary Policy Committee (MPC). Inflation stood at 33.88 percent as of October 2024.

Inflation rate climbed to 33.88 percent in October, from 32.7 percent in September, marking a second month of increases, the National Bureau of Statistics (NBS) said.

“The Central Bank is resolute and committed to continuing to fight the war against inflation and there is no going back on that.

“We are going to deploy everything in our arsenal to ensure that we are able to tame it. And of course, this entails the return to orthodox monetary policies,” Cardoso stated amid agitations of rising interest rates on the economy.”

Cardoso was optimistic that current measures would be able to tame prices in coming months due to lag effect.

“It is important for people to understand that there is a time lag between when you implement policies and when they have an impact. That time lag can be anything up from six to nine months to even a year. Our own perspective is that we expect to see greater results in the first quarter of 2025.”

He said in addition, that the apex bank is working very assiduously with some of the relevant agencies to ensure that structural impediments to growth are handled appropriately.

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Nigerians forced to use charcoal on energy costs

Nigerians have been forced to revert to burning fuelwood and charcoal due to soaring clean energy costs.

“We used to cook with gas, but now it’s like a luxury as we can’t afford it anymore,” said Rose Abiodun, a mother of three living in Mararaba, Nasarawa State.

“Every time I go to buy it, the price seems to have gone up again. We’ve switched to using charcoal because it’s cheaper, but it fills our home with smoke. However, what choice do we have?” she asked.

Abiodun’s experience is shared by millions of Nigerians. According to the 2024 Nigeria Residential Energy Demand-Side Survey (NREDSS) report by the NBS, nearly 67.8 percent of Nigerian households have returned to using fuelwood, while 21.6 percent rely on charcoal. The report also highlights that one in five households now depends on charcoal as a primary energy source.

Experts say charcoal and fuelwood are not only harmful to the environment but also detrimental to public health.

The cost of LPG has surged by over 65 percent in the past year, with a 12.5 kg cylinder now priced at an average of N16,000 compared to N9,000 just a year ago. As energy prices remain high, a growing number of families opt for these older, cheaper alternatives.

“Cooking with firewood is the biggest developmental hurdle we face in Nigeria. Before we even start talking about environmental consequences, this is a matter of life and death,” said Igwebuike Stanley Ijeoma, member of the Committee of Chairs on the board World Council for Renewable Energy (WCRE) and CEO of Schrodinger Greentech.

“According to the World Health Organization, about 93,000 women in Nigeria die annually from respiratory complications due to soot and smoke inhalation from firewood burning. Our precious women are dying from this. This is a huge challenge,” Ijeoma noted.

Samuel Ade, an Abuja based medical doctor, noted that using charcoal and firewood for cooking poses serious health risks, particularly respiratory diseases, as individuals inhale soot and other harmful by-products from the combustion process.

Impact of rate hikes

Uche Uwaleke, a professor of Capital Market at the Nasarawa State University, Keffi, said: “The weak performance of the Agric and manufacturing sectors as indicated in the NBS Q3 GDP report may not be unconnected with rising interest and exchange rates.”

He expressed optimism that the marginal rate increase is a signal that the apex bank will completely pause or apply the brake in the monetary policy rate (MPR) or benchmark interest rate increase beginning from the first quarter of next year.

“This has to happen to stem the rising cost of funds and negative impact on credit access so that small businesses in particular can breathe.

“Indeed, the current macroeconomic challenges make it imperative for a proper synergy between monetary and fiscal policies,” he added.

Read also: In sixth move this year, CBN raises rate to 27.5%

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, explained that October’s inflation rise likely reflects the delayed impact of earlier fuel deregulation and flooding. Khan emphasised that exchange rate stability will play a critical role in reducing inflationary pressures. “In that event, we see little need for the CBN to tighten further,” she said.

She expressed confidence that these measures would gradually achieve the desired price stability.

Ayodeji Ebo, managing director/CBO at Optimus by Afrinvest, said the decision will lead to higher borrowing costs, posing challenges for businesses already grappling with high energy prices and infrastructure deficits.

He warned that more expensive loans could hinder companies’ ability to manage operational expenses and invest in growth. However, he added that the rise in borrowing costs may not significantly affect fixed-income rates due to the current interest rate levels.

Tilewa Adebajo, CEO of CFG Advisory, described the MPC’s decision as expected, noting that its implications for the economy remain unchanged.