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MPC Meets Today, May Cut Interest Rate

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CBN

The Central Bank of Nigeria’s Monetary Policy Committee will today (Monday) begin its two-day bi-monthly meeting to review the state of the economy.

It is expected to take key policy decisions that will influence the direction of the economy.

Top on the agenda of the meeting is the need to tackle the biting recession occasioned by slow growth in the economy, rising inflation, and the volatility in the foreign exchange market.

In a notice posted on its website, the  CBN stated that 252nd meeting of the MPC would hold at 10am on Monday and Tuesday at the corporate headquarters of the apex bank in Abuja.

Economic experts expect the 12-member MPC to begin an expansionary monetary policy by reducing the Monetary Policy Rate (the benchmark interest rate), and lower the Cash Reserve Ratio.

According to the economists, the MPC will need to reduce the liquidity ratio and take measures to address the lingering volatility in the foreign exchange market.

The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the MPC might have no other choice than to purse an expansionary monetary policy considering the state of the economy and the recent stimulus package announced by the fiscal authority.

He said, “We expect an accommodative monetary policy as against a contractionary one. The CBN will want to complement the effort of the fiscal authority, especially as regards the stimulus package that was recently announced.”

In an economic bulletin released on Friday, Rewane added, “The divergence between the year-on-year headline inflation and the annualised monthly rate of 6.17 per cent poses a major dilemma to the apex bank. Even though the monthly measure is more relevant to inflation expectations, it may need to maintain consistency with the previous measure.

“The clamour for a stimulus package and lower interest rates by the government and the public will force a more accommodative stance by the committee in spite of other considerations.

“The high inflation environment has reduced consumer spending, real returns and corporate profitability margins. The markets have reacted accordingly.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the view that the MPC would begin an accommodative monetary policy.

He said, “It is clear that we have not been able to control inflation with the tightening policy. If the overriding consideration is to reflate the economy, the MPC will need to reverse the last increase made in the MPR by reducing it from 14 to 12 per cent. The committee may need to cut the Cash Reserve Ratio from 22.5 per cent to 20 per cent and then to 15 per cent later.

A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also said he expected the committee to reduce the MPR in order to lower interest rate on bank loans and subsequently boost credit in the economy.

He said, “This is a time to begin an expansionary monetary policy. The MPC must reduce the MPR, reduce the liquidity ratio or maintain the status quo. We have seen that the inflation we are experiencing is cost-push, i.e caused by increase in cost of capital and not by demand pull. So we need to reduce the cost of capital in the economy.

“There is also a need for the committee to tell us how they intend to tackle the volatility in the exchange rate. They need to tell us whether the volatility is being caused by speculators or real demand. If it is caused by real demand, there is nothing they can do about it. However, if it is activities of speculators, then they must state how they intend to deal with it.”

The MPC had during its July meeting hiked the MPR by 200 basis points to 14 per cent.

The 14 per cent MPR announced by the CBN is the highest in over a decade.

However, the committee left the CRR and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.

The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.

Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.

In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.

Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.

The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.

The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.

The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.

According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.

He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.

The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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