The first MPC meeting under Cardoso further tightens monetary policy, as MPR now 22.75%

As predicted by a ThinkBusiness poll of economists, the first monetary policy committee (MPC) under the leadership of Yemi Cardoso, governor of the Central Bank of Nigeria (CBN) since September, has raised its monetary policy rate (MPR) by 400 basis points to reach 22.75%. In addition, the Cash Reserve Ratio has been raised to 45%, from 32.5%, while the liquidity ratio was retained at 30%. The asymmetric corridor is +100 basis points to – 700 basis points around the MPR.

The MPC meeting came amidst recent dramatic depreciation of the Naira, now exchanging for N1,700 to the US dollar on the Nigeria Foreign Exchange Market (NAFEM), and rising inflation rate that reached 29.9% last month, and the governor, in its first major press conference since he became governor, shared extensively his thoughts as he answers many questions from reporters present at the briefing. The Governor answered various questions, including on the value of the Naira, infractions and compliance of the Bank’s policies and guidelines, Binance and other crypto currency platforms, Nigeria’s current level of reserves, Bureau de Change, and the development banking role of the previous leadership of the CBN.

On the Naira value, the governor maintained that he believes that Naira is currently undervalued. He said the rapid depreciation of the Naira is being driven by “distortions”, saying “distortions are driving the market, (the value of the Naira) is not what it is, so distortions need to be removed”. On compliance and infractions, the governor said the Bank is in a period of “aggressive regulatory environment and the tolerance for noncompliance is zero”. The Governor also said the Bank has just made another payment of US $400 million towards clearing the balance of the over US $2 billion left of the backlog. He said, “we are committed to clearing backlog of identified and genuine requests that are pending”. In terms of reserves, the governors say the Banks’ reserves have gone up to US $34 billion.

On Binance and other cryptocurrency platforms, the governor says, “we have a responsibility to protect Nigerians and it is that mindset that makes the CBN collaborate with the Securities and Exchange Commission (SEC) and other government agencies in looking into certain practices, illicit, and suspicious flows”. For instance, he said the Binance platform has processed US $26 billion in the last year alone. On the BDC guidelines shared last week, it should be seen as a draft proposal for which the public can make contributions on how it can be improved. According to him, the number of BDCs are currently near 6,000.

In what will most gladden the heart of Nigerians, the governor said, “the Bank will put everything we have to fight macroeconomic instability”. 

The meeting had been highly anticipated because it is the first under the leadership of governor Yemi Cardoso. It was also highly anticipated because there have been significant changes in Nigeria’s macroeconomic environment. For instance, in July 2023, the headline inflation was 24.08%, while inflation is now 30%. The Naira exchanged for about N755 to the US $ while it is about N1500 to the US $ today. Since September, especially in the last two months, the CBN has carried out important and significant measures towards the stabilisation of the Naira, including open market operations, capital control measures, incentives for market players, and the reduction of the net US $ holding by Nigerian banks.

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Recall that the last MPC of the CBN before this was the 292nd and was held in July 2023. The decisions reached then included raising the Monetary Policy Rate (MPR) to 18.75%. The asymmetric corridor was adjusted to +100 / – 300 basis points around the MPR while CRR and Liquidity Ratio were retained at 32.5% and 30%, respectively. On 21st September, the CBN announced the postponement of the planned 293rd meeting till further notice, given that an entire new Board of Governors have just been appointed, while the planned next MPC of 20 – 21 November 2023 did not hold as well.  

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