•CBN to maintain monetary tightening amid inflation, proposed fuel Subsidy Removal
•Reiterates Nigeria’s banking industry resilience to external shocks
•Apex bank raises MPR to 18%, urges FG to boost non-oil revenue to cut fiscal deficit, debt burden
•eNaira transactions hit record N22bn, 13 million wallets, banks’ cash reserve deposits hit N14 trillion
•Disbursements under ABP now N1.09trn
James Emejo in Abuja and Nume Ekeghe in Lagos
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday admitted challenges faced by bank customers following the limit on cash withdrawals and apologised for the deluge of online transaction failures in the country.
Also, Emefiele said the apex bank would sustain the current monetary tightening regime following the continued rise in headline inflation which posed significant risks to the economy.
The CBN governor said this just as the Monetary Policy Committee (MPC) of the central bank, resolved to raise the Monetary Policy Rate (MPR) otherwise known as interest rate by 50 basis points to 18 per cent from 17.5 per cent.
Additionally, Emefiele said the continued upward risk to price development around expectation for the removal of fuel subsidy as well as rising prices of other energy sources, continued exchange rate pressure and uncertain climatic conditions further justified the need to purse a moderate contractionary monetary policy.
“I must apologise. Yes, online channels fail. But no doubt it is as a result of the deluge of online transactions that hit the banking industry. But it is being resolved.
“On a daily basis, our Payment System Management Department monitor the online payment platforms so as to make sure that when there is a downtime, they are quickly resolved so that transactions can go on smoothly,” the CBN governor said.
Addressing journalists at the end of the two-day meeting of the committee in Abuja, Emefiele, however, noted that the bank retained other monetary policy parameter including bank’s Cash Reserve Requirement (CRR) at a minimum of 32.5 per cent as well as the Liquidity Ratio (LR) at 30 per cent.
The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.
The CBN governor further explained that the decision to raise interest rate was taken to further rein in inflation.
Emefiele said the Nigerian banking sector has had no contagion as a result of the recent banking failures in the United States and Switzerland.
He said this was made possible by the prudential guidelines already put in place to ensure that financial institutions are able to ward-off any such risk exposures.
Emefiele said through the various prudential requirement in place, and to act as insulation from global shocks, banks’ cash reserve deposits had increased to a whopping N14 trillion.
He also disclosed that the CBN Digital Currency, also known as eNaira had witnessed significant adoption as value of transactions currently stood at N22 billion with 13 million wallets created.
The CBN boss also disclosed that total disbursement under the Achor Borrower’s Programme (ABP) stood at about N1.09 trillion to date.
Emefiele, who read the committee’s communique noted new and existing headwinds to the broad stability of the global economy, particularly the risk of a global financial contagion from the recent bank failures in the United States and Switzerland.
He added that the war between Russia and Ukraine had continued unabated, causing critical strains to the commodities and energy markets as supply chain bottlenecks remain, while the lingering risk of the resurgence of several variants of the Corona virus persists after China set aside its Zero-COVID policy.
The CBN governor noted that the MPC meeting focused not only on the inflationary trends in most major economies, but also on the reported impact of policy rate hikes: aimed at rein-in inflation on financial system stability in the global financial system.
He said, the committee, as a result discussed the recent bank failures in the US and Switzerland, an event that occurred following the persistent interest rate hikes in the US, and how this had adversely impacted the broad portfolio of banks in the US.
The MPC noted that whereas the MPR was increased by 500 basis points in Nigeria, from 12.5 per cent in 2022 to 17.5 per cent in January 2023, the Financial Soundness Indicators (FSIs) in Nigeria shows that the Nigerian banking system remain resilient due largely the stringent prudential guidelines put in place by the CBN which has resulted in a strong build-up of not only the Cash Reserve Ratio (CRR) in Nigeria, but also the Liquidity Ratio and capital Adequacy Ratio.
Emefiele said in the light of these strong FSIs, the committee was comforted that its various decisions in increasing MPR have had moderate impact on inflation, given that the rate appears to have plateaued in Nigeria.
He said the MPC’s major considerations at the meeting, therefore, focused on arriving at key policy mechanisms to shield the economy from emerging shocks from the global economy, as well as sustain its focus on domestic price stability.
According to him, “Headline inflation, in the view of members, remained high with increased expectations of price development, due to the perennial scarcity of PMS and ongoing discourse around the removal of fuel subsidy.
“With the prices of other energy products also rising, members stressed the importance of addressing price development.
“The Committee also considered the continued impact of exchange rate pressure on domestic price levels and called for policies to attract both portfolio and foreign direct investment to Nigeria.
“It maintained optimism that, the continued progress made with the RT200 FX programme, Naira-4-dollar and other policies targeted at attracting diaspora remittances, would continue to help improve accretion to the external reserves and improve liquidity in the foreign exchange market.”
He said while output growth remains on a positive trajectory, members called for increased monetary and fiscal coordination to support the recovery in light of risks confronting the domestic economy.
To this end, the committee enjoined the fiscal authority to explore other avenues to improve non-oil revenue to reduce the fiscal deficit and public debt burden.
He said, “Following new risks of financial contagion emerging from the scenario of failed banks in some advanced economies, members examined the possibility of shocks to the Nigerian banking system from these banks and concluded that the Nigerian banking system remains reasonably insulated from such likely contagion.
“The CBN has been able to achieve this through stringent micro and macro-prudential guidelines that have ensured that individual banks and the banking industry in Nigeria have adequate buffers to ward-off global contagion. In addition to this, the MPC examined the possible impact of further policy rate hikes on the stability of the banking system and was convinced that further hikes would not adversely impact the stability of the banking system.
“The Committee, however, called on the central bank’s management to strengthen its regulatory oversight on the banking system to ensure that the banking industry remain stable and resilient.”
In arriving at a decision to raise the benchmark interest rate however, Emefiele noted that the continued rise in headline inflation remained a significant problem confronting the economy, other macroeconomic variables are moving in the right direction, despite observed headwinds.
He said the committee’s debate, therefore, was whether to continue its rate hike to further dampen the rising inflation trajectory or hold to observe emerging development and allow for the impact of the last five rate hikes to permeate the economy.
He said loosening, in the view of members, would gravely undermine the gains achieved so far.
He said, “The MPC observed the continued upward risk to price development around expectations on the removal of the PMS subsidy; rising prices of other energy sources; continuing exchange rate pressure; and uncertain climatic conditions.
“These in the view of members, provides a compelling argument for an upward adjustment of the policy rate, albeit, less aggressively.
‘The Committee, however, noted that the naira redesign and cash withdrawal limit policies have resulted in a sizeable reduction in Currency-Outside-Banks, indicating an expected improvement in the potency of monetary policy tools.
“Members, however, remained aware of the ongoing challenges associated with the limits imposed on cash withdrawals in the face of frequent downtime in bank electronic transaction channels.
“The Committee thus called on Other Depository Corporations, online payment platforms, and other stakeholders to ensure that the prevailing incidence of network failures is overcome in the immediate and short term.
“This would ensure that the naira redesign and cash withdrawal limit policies lead to an improved in-road of the CBN cashless programme and efficiency of the transmission mechanism of monetary policy.
He said, “We’re seeing a very steep rise in the rate of increase in inflation in Nigeria and the rate of acceleration was quite steep. But by around May, when we began to see global pressure on inflation, we also started to raise MPR. All the increase was in an attempt to stem the aggressive rise in inflation.
“What we saw is that because of the action that we have taken, the rate of increase in price which is inflation as begun to decelerate. For instance, between April and August, the rate of increase in inflation was about 5 per cent. But between August and even now, the rate of increase in inflation is only about 1.4 per cent – because of the tightening measures that have been adopted by the CBN over this period.”
Emefiele explained that the N22 billion recorded in eNaira transactions represented 68 per cent increase since the beginning of the year, out of which N10 billion had been minted and N3.42 billion currently in circulation.
He said, “So I will say that we have seen good progress in the adoption of eNaira. We’re happy that as we move more and more towards financial inclusion and get people away from being excluded from the financial system, eNaira remains one portable option for you to adopt.”
Also, commenting on how Nigerian banks were insulated from global risks, the CBN governor said, “We have put in place a couple of prudential guidelines to regulate the Nigerian bank and we see and make bold to say that the financial soundness indicators in the Nigerian banking industry which show that the banking industry remains very resilient compared to what we find in other climes.
“For instance, the capital adequacy ratio, which is meant to be between 10 per cent and 15 per cent; today it is about 13.7 per cent. Non-performing loans ratio has dropped to 4.2 per cent, liquidity ratio is about 43 per cent. Return on equity is at least 21 per cent, which we think is reasonable.
“Cash reserve today, aside from treasury bills that we are keeping, we are today holding close to about N14 trillion in cash reserve deposits from banks. This is good liquidity that is meant to actually act as insulation.”
