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Tag: Interest Rate

  • Expert faults CBN increase in interest rate

    Expert faults CBN increase in interest rate

    Mr Daniel Akeju, an advisor and treasury manager has faulted the Central Bank of Nigeria (CBN) recent increase in the Monetary Policy Rate (MPR) in an attempt to curb inflation and stabilise the economy.

    Akeju, a member of the Chattered Institute of Treasury Management (CITM), made his position known while speaking with newsmen in Abuja on Thursday.

    The MPR is the interest rate at which the Central Bank of Nigeria (CBN) lends to commercial banks.

    Recall that CBN had increased MPR by 400 basis points to 22.75 per cent from 18.75 per cent in February 2024.

    It was increased by 200 basis points to 24.75 per cent in March and currently by 150 basis points to 26.75 per cent in May.

    Akeju said that the challenges facing Nigeria’s economy required more than a simplistic approach of raising the MPR.

    He noted that while controlling inflation was crucial, it must be done in tandem with measures that would address the root causes of economic instability.

    He said that a balanced, holistic strategy that would combine supply-side interventions, enhanced security, economic diversification, and social safety nets would be more effective.

    This, according to him, is in terms of stabilising prices, improving food availability, reducing terrorism, and alleviating poverty.

    “By adopting these comprehensive measures, Nigeria can build a resilient economy that provides prosperity and security for all its citizens. The time for such a transformative approach is now”, he said.

    He said that the strategy of having to consistently increase the MPR was counterproductive, as evident in the continuous rise in prices, food scarcity, escalating terrorism, and growing poverty rates.

    “The disconnect between the intended outcomes of these monetary policies and the harsh realities faced by Nigerians necessitates a critical reassessment of the CBN’s approach”, he said.

    He stated that raising the MPR is typically aimed at controlling inflation by making borrowing more expensive, thereby reducing spending and slowing down price increases.

    He however stated that, in Nigeria’s context, the policy had not yielded the desired results.

    The reasons, he said include cost-push Inflation, largely driven by supply-side factors, including high costs of production and distribution fuelled by insecurity and infrastructural deficits, limited access to credit

    Others include: Imported Inflation, government borrowing among others.

    He urged the CBN to focus more on agriculture intervention; enhanced security; industrialisation; monetary and fiscal coordination and targeted social programmes

    He added that the persistent hike in MPR has had severe socioeconomic repercussions, such as rising food prices, increased poverty, escalating terrorism, social safety nets among others.

  • Reactions trail CBN raising interest rate to 26.25%

    Reactions trail CBN raising interest rate to 26.25%

    The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), has raised the country’s baseline interest rate by 150 basis points to 26.25 per cent from 24.75 per cent.

    Mr Yemi Cardoso, the Governor of CBN, said this on Tuesday in Abuja, while reading the communique from the 295th meeting of the MPC.

    Cardoso, however, said that the committee decided to hold all other parameters constant.

    The Cash Reserve Ratio (CRR) was thus, retained at 45 per cent, the Liquidity Ratio of 30 per cent was retained and Asymmetric Corridor of +100/-300 basis points around the MPR was also retained.

    Cardoso said that all 12 members of the committee were present at the meeting.

    According to him, the key focus of the committee at the meeting remained to achieve price stability by effectively using tools available to the monetary authority to reign in inflation.

    He said that members observed that while year-on-year headline inflation in April rose moderately, the month-on-month measures of headline, food, and core inflation all declined significantly.

    “This follows a decline month-on-month of headline and food measures in March, suggesting that the recent tight monetary policy stance of the CBN is beginning to yield the desired outcome,” he said.

    He said that the MPC, however, noted that inflationary pressure continues to be driven largely by food inflation.

    “The committee, thus, reiterated several challenges confronting the effective moderation of food inflation.

    “They include rising cost of transportation of farm produce, infrastructure related constraints along the line of distribution network, and security challenges in some food producing areas,” he said.

    Cardoso said that “exchange rate pass-through” to domestic prices for imported food items was also an impediment to taming food inflation.

    According to him, the MPC urged that more be done to improve the security of farming communities to guarantee improved food production in these areas,” he said.

    This is the third consecutive tightening of the baseline interest rate, known as the Monetary Policy Rate (MPR) by the MPC under Cardoso.

    At its 293rd meeting in February, the committee increased the MPR by 400 basis points from 18.75 per cent to 22.85 per cent, and also increased it by 200 basis points, to 24.75 per cent from 22.75 per cent in March.

    Meanwhile, an economist, Dr Chijioke Ekechukwu, reacting to the decision of the MPC, urged stakeholders to give the committee the benefit of the doubt.

    ”Although, a continuous increase of MPR in my opinion, is not going to control inflation. It is rather going to continue to increase it, as the cost of funds will rise.

    “This will ultimately be borne by consumers through higher prices of goods and services. There are other drivers of inflation, which are not within the control of the monetary policy.

    ”If a sickness needs a combined doses of two drugs to heal, and you use only one drug, that sickness will remain with the patient,” Ekechukwu said.

    Uche Uwaleke, a professor of Capital Market and the president of the Association of Capital Markets Academics of Nigeria, said that the hike in the MPR by a further 150 basis points would most likely have an adverse consequence on the equities market.

    According to Uwaleke, this is given the inverse relationship between interest rates and equities market returns.

    “It has the potential of triggering portfolio rebalancing in favour of fixed income securities. If I were a member of the MPC, I would have voted for a hold position as the aggressive policy rate hike is taking a toll on output.

    ”Production is stiffled because of very high cost of funds. Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria,” he said.

    He listed such factors to include high cost of energy, transport as well as insecurity in the food-belt regions of the country.

    MPC rate hike will hurt real sector investment- CPPE boss

    Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE) has expressed concerns about the rate hikes by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).

    Dr Muda Yusuf, CEO of CPPE said this in a statement on Tuesday in Lagos, while responding to the outcome of the MPC meeting, held Monday and Tuesday in Abuja.

    Yusuf said that the rate hikes might have a negative impact on the real sector and investments, leading to increased hardship for businesses.

    “We have seen yet a further tightening of monetary conditions in the economy. My prayer was for the MPC to pause the rate hikes for a number of reasons.

    “First, previous rate hikes have been quite aggressive, hurting output and real sector investments. Most economic operators with credit exposures to the banks have not recovered from previous hikes.

    “Interest rates were already around 30 per cent threshold. Secondly, extant CRR of 45 per cent has profound liquidity effects on the financial system.

    “Both measures have dampening effects on financial intermediation, which is the primary role of banks in an economy.

    “Thirdly, the monetary policy transmission channels are still very weak, given the level of financial inclusion in the economy. This limits the prospects of monetary policy effectiveness,” he said.

    According to him, the new rate hike is an additional cross to be borne by investors who have exposures to bank credit facilities.

    “Naturally, a rigid monetarist disposition by the Central Bank is expected. But we need to reckon with the costs to the economy.

    “Hopefully, with the positive outlook for domestic refining of petroleum products, we may begin to see a moderation in energy cost and a pass through effect on general price level.

    “This is one silver lining that is on the horizon at the moment. Necessary fiscal policy support are urgently needed to compensate for the adverse impact of extreme monetarism on the economy,” Yusuf said.

  • MPC: Ex-CBN director predicts increase in lending rate

    MPC: Ex-CBN director predicts increase in lending rate

    Dr Titus Okunronmu, former Director of Research Department, Central Bank of Nigeria (CBN), has predicted an increase in the lending rate from its current 24.75 by the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN).

    Okunronmu gave the prediction in an interview on Monday in Ota, Ogun. The financial expert spoke against the backdrop of the MPC meeting scheduled for Monday and Tuesday.

    He stated that the lending rate would be raised by MPC, as CBN might not want to force it down, adding that until the inflation rate came down, the lending rate would continue to go up.

    “It is at the same level of inflation that CBN will net or fix the lending rate,” he said.

    According to the former CBN director, the higher the inflation rate, the less profit commercial banks will record.

    Retain 24.75% lending rate – Experts advise CBN

    Meanwhile, some financial and economic experts have advised the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to retain the lending rate of 24.75 per cent.

    The experts, who gave the advice in separate interviews with NAN in Abuja spoke against the backdrop of the MPC meeting scheduled for Monday and Tuesday.

    A renowned economist, Prof. Ken Ife, said that the seeming success of aggressive tightening in the last two meetings might propel the committee to further tighten the rates.

    Ife, Lead Consultant on Private Sector Development to the ECOWAS Commission,
    however, advised the committee to retain the prevailing rates.

    “They might want to increase it. The worst case scenario is for them to retain. This is because the policy is working to tighten the grip on inflation. It is actually yielding results.

    ”Even though, relative to last year, inflation is increasing, when you look at month on month inflation, all the five inflation indices are decreasing.

    “Headline inflation, which is the composite price index, food basket index, core inflation, urban inflation, and rural inflation. They all went up in the last 12 months, but month on month, between March and April, they all started going down.

    ”So, the aggressive tightening is working, but it needs more time for the growth to become significant and reflect on the next months,” he said.

    According to Ife, the MPR, being less than inflation, is a major challenge for investors.

    ”Inflation is 33.1 per cent while the lending rate is 24.75 per cent. This does not encourage investment. So, the MPR could continue to rise while inflation continues to decline until one gets higher than the other.

    “In the prevailing circumstance, private sector investment could be crowded out because if banks are forced to borrow at a high level, their lending rates will also get higher. It is advisable to retain the rates but I know that they are minded to increase it,” he said.

    Another economist, and past president of the Abuja Chamber of Commerce and Industry (ACCI), Dr Chijioke Ekechukwu, also urged the MPC to halt further tightening of the lending rate

    “At the inception of the new MPC, it has been about tightening. Tightening became necessary because of the amount of money in circulation, which needed to be mopped up.

    “This has resulted in a high MPR, which has equally led to a high interest rate in the financial sector.

    “Having reached this far, instead of tightening further, they should hold on to the existing rates to be able to see the impact of the tightening that has been done already.

    “The more tightening that we have, the more the inflation rate. Today, there is a positive correlation between high MPR and high inflation rate,” he said.

    According to him, it is not supposed to be so, but our economic situation is peculiar because there are other factors outside the purview of the monetary policy that also contribute to a high inflation rate.

    “For example, food inflation has nothing to do with monetary policy. It is a security challenge.

    “Also, the increase in the pump price of PMS has nothing to do with monetary policy,” he said.

    Uche Uwaleke, a professor of Capital Market and the president of Capital Market Academics of Nigeria, urged the MPC to retain the prevailing rates to mitigate the impact of its aggressive policy tightening on Nigerians.

    According to Uwaleke, if I were a member of the MPC, I would vote for a hold position as the aggressive policy rate hike is taking a toll on output.

    “Production is stifled because of the very high cost of funds. Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact.

    “This is due to the significant non-monetary factors driving inflation in Nigeria, such as high cost of energy, transport as well as insecurity in the food-belt regions of the country,” he said.

  • No airline can survive 28% interest rate – Ex-NCAA D-G

    No airline can survive 28% interest rate – Ex-NCAA D-G

    Dr Harold Demuren, a former Director-General of the Nigeria Civil Aviation Authority, (NCAA) , says no airline can survive under the current 28 to 30 per cent interest rate charge on loans by commercial banks.

    Demuren stated this  at the Aviation Safety Roundtable Initiative (ASRT) Q1 Business Breakfast Meeting on Thursday in Lagos.

    According to him, an airline is dead even before starting business with such an interest rate.

    “You borrow money from the bank at what, 28 per cent and 30 per cent, how do you win?  You are dead from the beginning.

    “These are the things we should look at. Government gives agriculture a special interest rate, why is that and not also to aviation?,” he noted.

    He said there was need for government funding as regards safety.

    “When people are safe, they will tolerate you, otherwise, they will not like to fly. Aviation is crucial to our survival”.

    He noted that training was pivotal to development and that with no training, the sector would not achieve its goal.

    Demuren recalled how big he was with training during his time as D-G.

    Mr Benedict Adeyileka, an Engineer and  former NCAA D-G, delivered a paper on “Manpower Strategy, Training, Succession and Development in Aviation”.

    Adeyileka said that according to Boeing, Africa needs 67,000 pilots, technicians and cabin crew to solve manpower problems.

    “According to the Aviation Industry Global Skills Survey (GSS) conducted in 2022 by IATA, it was concluded that the perceived gap in aviation is a quantitative staffing gap rather than a qualitative skill gap,” he said.

    Demuren and four others were inaugurated as a patrons of ART, while Prince Julius Adelusi-Adeluyi, Chairman of Juli Pharmacy, was awarded the Grand Patron of ART.

    In his remarks, Adelusi-Adeluyi commended the initiative and expressed his passion for aviation, stating that more should be done as it concerned membership, funding and programmes in the sector.

    Also, the Nigeria College of Aviation Technology (NCAT) disclosed that its N16 billion Boeing 737NG simulator had remained inactive due to NCAA certification concerns.

    Capt. Ambursa Abbas, the College Simulator Director, said that CAA’s incapacity to certify the 2020-acquired equipment had stalled the optimal use of the technology.

    According to Abass, Boeing 737NG simulator potential goes beyond Nigeria as several proposals from Middle Eastern companies have continued to roll in to make use of the simulator.

    “We have not had any users of our simulator; however, we have proposals. We have companies waiting for us.

    “So, it is not about the relevance. As I speak, we have more than five (5) companies in the middle east that are waiting for us.

    “As far as there is no certification, there is nothing we can do. But the NCAA, with NCAT, has sent people out to get certification,”he said.

  • European Central Bank keeps key interest rates on hold

    European Central Bank keeps key interest rates on hold

    The European Central Bank (ECB) has kept its key eurozone interest rates unchanged at its monetary policy meeting on Thursday.

    The main refinancing operations rate, which provides liquidity to the banking system, stands at 4.5 per cent.

    While, The ECB’s deposit rate, which credit institutions receive when they park money at the bank, stands at a record-high of 4 per cent.

    This is the fourth time in a row that the ECB has left key interest rates in the 20-country currency area unchanged.

    The ECB ended its long era of zero and negative interest rates in July 2022.

    The ECB has repeatedly hiked rates in order to tame soaring inflation as the euro currency area came out of the pandemic.

    The central bank ultimately raised interest rates 10 times in a row before the run ended in October.

  • BREAKING: Egypt’s central bank hikes interest rates by 600 bps to record high of 27.25%

    BREAKING: Egypt’s central bank hikes interest rates by 600 bps to record high of 27.25%

    The Central Bank of Egypt (CBE) has hiked overnight deposit rate, the overnight lending rate, and the rate of the main operation by 600 basis points to 27.25 percent, 28.25 percent, and 27.75 percent, respectively.

    TheNewsGuru.com (TNG) reports CBE on Wednesday also hiked Egypt’s discount rate by 600 basis points to 27.75 percent while acknowledging that the tighter stance could result in a short-term contraction in the private sector’s real credit growth.

    The apex bank, however, noted that the persistence of excessive inflationary pressures poses greater risks to its stability.

    TNG reports Egypt’s pound fell sharply against the dollar as the markets opened, tumbling past 40 pounds to the dollar from about 30.85 pounds previously.

    While the central bank has had an inflation target until now, it also sought to manage the pound, which has been fixed at 30.85 to the dollar over the past year as the central bank has sought to defend its value amid a chronic shortage of foreign currency.

    According to CBE, the measures were taken in the light of inflationary pressures driving headline inflation to record levels in the country.

    It further stated that the measures have been adopted as part of a set of comprehensive economic reforms in coordination with the government, and backed by the steadfast support of multilateral and bilateral partners.

    “The domestic economy has been recently weighed down by foreign exchange shortages resulting in the existence of a parallel exchange rate market and constraining economic growth.

    “Coinciding with this, external spillovers emanating from global inflationary pressures have continued to accumulate as the world economy witnesses successive shocks. Such shocks elevated risk-off sentiment and inflation expectations, amplifying underlying inflation.

    “The resulting exchange rate movements and significant passthrough of international commodity prices, coupled with domestic supply shocks, have resulted in persistent inflationary pressures driving headline inflation to record levels.

    “Accordingly, while annual inflation figures have been recently declining, they are expected to remain substantially above the Central Bank of Egypt’s inflation target of 7 percent (±2 percentage points) on average in 2024 Q4,” a statement released by CBE shortly after an emergency Monetary Policy Committee (MPC) meeting reads.

  • Why CBN moderately raised interest rate from 18.50% to 18.75%

    Why CBN moderately raised interest rate from 18.50% to 18.75%

    The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Monday, raised the country’s Monetary Policy Rate (MPR) from 18.50 per cent to 18.75 per cent.

    The Acting Governor of the CBN, Mr Folashodun Shonubi made this known on Tuesday while presenting the communique from the MPC meeting.

    TheNewsGuru.com (TNG) reports that the MPR is the baseline interest rate upon which other interest rates are built.

    Shonubi announced that the committee also adjusted the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR, retained the Cash Reserve Ratio (CRR) at 32.5 per cent; and retained the Liquidity Ratio at 30 per cent.

    According to Shonubi, the committee is confronted with only two policy options, to hold or marginally hike the policy rate to offset the moderate increase in headline inflation.

    “Considering the option to hold, the committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth.

    “Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price development and was gradually but steadily yielding the expected outcome.

    “The option to continue to hike the policy rate, albeit moderately, also presents a strong alternative,” he said.

    He said that this was premised on the expected liquidity injections into the economy, from the recent policy developments and the likely impact on inflation.

    “The committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which will ultimately lead to the recovery of output growth.

    “The balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence.

    “The MPC, thus, resolved by a majority vote to raise the Monetary Policy Rate (MPR) by 25 basis points. Six members voted to raise MPR by 25 basis points while five members voted to hold the MPR Constant.

    “All members, however, voted to narrow the asymmetric corridor from +100/-700 to +100/-300 around the MPR,” he said.

  • BREAKING: CBN hikes interest rate to 18.75%

    BREAKING: CBN hikes interest rate to 18.75%

    The Central Bank of Nigeria (CBN) has moderately raised the monetary policy rate (MPR) from 18.5% to 18.75%.

    TheNewsGuru.com (TNG) reports MPR is the baseline interest rate in an economy on which every other interest rate used within the economy is built on it.

    Acting CBN Governor, Mr Folashodun Shonubi disclosed the hike in MPR at the 292nd Meeting of the Monetary Policy Committee (MPC) press briefing on Tuesday.

    “In summary, the MPC voted to raise the policy rate by 25 basis point from 18.5% to 18.75%; adjust the asymmetric corridor to +100, -300 basis point around the MPR; retain the CRR at 32.5% and retain the liquidity ratio at 30%,” Mr Shonubi stated.

    TNG reports CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash, while the bank’s liquidity ratio is the proportion of deposits and other assets they must maintain to be able to meet short-term obligations.

     

    Details shortly…

  • Despite rising inflation, CBN increases interest rate 18.5 per cent

    Despite rising inflation, CBN increases interest rate 18.5 per cent

    The Central Bank of Nigeria’s Monetary Policy Committee (MPC) has  increased the interest rate by 18.5 per cent to 20.5 per cent from the initial 18 per cent in March despite rising inflation in the country.

    The increment in interest rate was announced on Wednesday  by Governor of the Central Bank of Nigeria, Godwin Emefiele, during the MPC communique presentation and Analysis.

    According to Emefiele, the decision to increase the interest rate was to curtail the rising inflation in Nigeria.

    “Our actions to increase the MPR rates are potent because the inflationary pressures you see today confronting us are a global phenomenon and this started in 2022”, he stated.

    In March, the policy-setting committee raised the MPR from 17.5 to 18 per cent in February to tackle inflation. However, despite the continued hike of MPR since last year May, the inflation of Nigeria had increased to 22.22 per cent in April 2023, according to the National Bureau of Statistics.

    The MPR is the baseline interest rate in an economy on which other interest rates within that economy are built.

  • CBN jerks up interest rate to 18%

    The Central Bank of Nigeria Monetary Policy Committee (MPC) has agreed to jerk up the benchmark interest rate by 50 basis points to 18. per cent.

    This was made known by the CBN Governor, Godwin Emefiele through a communique of the second MPC meeting of the year on Tuesday.

    In his address to pressmen, Emefiele  made it known that the committee has voted to keep the asymmetric corridor at +100 and -500 basis points around the MPR.

    .Addressing journalists at the end of the two-day meeting in Abuja, Mr Emefiele, said the committee voted to keep the asymmetric corridor at +100 and -500 basis points around the MPR.

    Analysts in the country had predicted the Central Bank of Nigeria and the MPC may not raise the lending rates at the end of the Monetary Policy Committee.

    However, the governor stated the slight increase is to mitigate the effect of inflation and other economic issues.

    The MPR has been on the rise since April 2022, when it was 11.50 per cent.

    The rate impacts lending and inflation rates, and, when jacked up, consequently affects upward movement of prices of goods and services.

    He said, The MPC committee voted to raise the MPR by 50 basis point to 18 per cent, retain asymmetric corridor at +100 and -500 basis points around the MPR.”