MPC is still concerned about rising inflation against its primary mandate-Prof Uwaleke
Increase of the MPR means additional burden on business- Muda Yusuf
- CBN holds banks’ N14trn in cash reserve
BY MOTOLANI OSENI
Following the hike of the benchmark monetary policy lending rate by 50 basis points to 18 per cent by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), various industry experts and economists have reacted on how the development is going to impact the businesses, investors and the nation’s economy at large.
At the close of its two day bimonthly meetings, the monetary authorities continued to tighten policy to rein in inflation which has squeezed consumer purchasing power. Even as the CBN said it is currently holding over N14 trillion in cash reserve deposit.
Speaking on this development, a renowned economist, and a former Commissioner for Finance in Imo State and a member of Nigeria’s Federation Account Allocation Committee (FAAC) Post Mortem Committee, Prof. Uche Uwaleke explained that the MPC is still concerned about rising inflation and the pressure in the forex market against the backdrop of its primary mandate of maintaining price stability.
To him, “I had expected MPC to maintain a hold position considering the significant drop in currency in circulation occasioned by the currency redesign policy and the fact inflation rate actually decelerated month on month between January and February 2023.
“The adverse impact of the recent cash scarcity on productive activities as well as the conclusion of election season should have provided justification for a hold position.
“That said, I think that the increase in the MPR by 50 basis points is a signal to financial markets that the CBN has begun the process of rate-hike pause and I expect that a complete halt in policy tightening will most likely happen at the next scheduled meeting of MPC in May. This is necessary in order to stimulate economic activities and create job opportunities.”
Similarly, the Managing Director of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said, the victims of the continuous hike in the monetary policy rate are the investors in the real economy and other entrepreneurs in the economy.
According to him, increase of the MPR to 18 per cent means an additional burden on business as it will result in a spike in cost of credit.
“Production costs would increase, sales will drop, profit margins will shrink and investors confidence will be negatively impacted. The reality is that ways and means financing, high energy cost, and foreign exchange challenges are much bigger factors in the inflation equation,” he stressed.
Yusuf said, the CBN should pay greater attention to financial system stability at this time, saying, recent developments in the global financial system underscores the imperative of cautious interest rate hikes.
“The CPPE is concerned about the stifling effect of the high CRR of 32.5 per cent on the banking system stability and financial intermediation role of the banking system,” he pointed out.
Also, the head of Global Markets at Parthian Partners, Ronke Akinyemi, said: “we expect investors to demand higher returns as inflation remains elevated, which will in turn lead to higher cost of domestic borrowing by the government and corporate and increased yields in the fixed income space.”
Meanwhile, the group executive chairman, Lancelot Group, Mr Adebayo Adeleke, while reacting to the apex bank’s comment on prioritising depositors money ahead of shareholders’ concerns, noted that, “there is a warped reasoning in CBN that Shareholders are not an integral part of the economic landscape.”
According to him, “Mr Emefiele appears to be ignorant of the fact that over N30 trillion market capitalisation today is a measure of shareholders’ investment in the economy today. He is also oblivious, or pretends to be oblivious, of the fact that more than 60% of the so-called depositors’ money belongs to shareholders and shareholders’ companies.”
This regulatory attitude of treating shareholders as expendable item, he said, is partly responsible for the narrow-visioned approach to solving issues.
“That unguarded statement sends a wrong signal to foreign investor who may want to invest in our banking eco-system that the regulator, and by extension the government, cares less about them and their investment. That they as catalysts of capital formation and economic development are held in high contempt.”
Meanwhile, over four million enaira wallets have been created in anticipation of the second quarter disbursement of funds under the federal government social intervention programme, as the Central Bank of Nigeira said it is currently holding over N14 trillion in cash reserve deposit.
Speaking with journalists at the end of the 290th Monetary Policy Committee (MPC) meeting, governor of the CBN, Godwin Emefiele noted that the prudential guidelines put in place in the banking industry which includes the cash reserve requirement has been instrumental to ensuring that the current wave of bank failures being seen in the United States.
Over the past two weeks, two banks, Silicon Valley Bank (SVB) which was the 16th largest banks in the US and Signature Bank had failed while Credit Sussie, a Swiss Bank had failed and was sold off this week. However, the CBN governor noted that the failure has zero impact on the Nigerian banking industry.
According to him, this was due to the measures that had been taken to safeguard depositors fund. Emefiele stated that Nigeria, is one of the countries of few countries in the world where we have cash deposit requirement, adding that “there is no direct investment by Nigerian banks, in SVB that could result in a loss of investments.
“That that’s one part , the second part is how are we sure that the Nigerian banking system is reasonably insulated to ensure that what happened in US does not happen in Nigeria. So we reviewed the various prudential guidelines were put in place. We have put in place a couple of prudential guidelines to regulate theNigerian bank and that we see and make good to see that the financial soundness indicators in the Nigerian banking industry shows that the banking industry remain very, very resilient compared to what we find in other climes.
“For instance, capital adequacy ratio, which is meant to be between 10 and 15 per cent, today it is about 13.7per cent. Non performing loans ratios has dropped to 4.2 per cent. Liquidity ratio is about 43 per cent. Return on equity is at least 21 per cnet, which we think is reasonable. Cash reserve today, aside from treasury bills that we are keeping, we are today holding close about N14 trillion in cash reserve deposits. This is good liquidity that is meant to actually act as insulation.”
Meanwhile, the CBN said, the country’s Central Bank Digital Currency (CBDC), eNaira, currently has 13 million electronic wallets with over four million of them opened over the past couple of days in anticipation of second quarter payments under the social intervention programme.
According to him the ministry of Humanitarian Affairs, Disaster Management and Social Development had been instrumental to the increase in enaira wallets. The CBN Governor noted that “ as of March 20, approximately 4 million wallets were created especially for social intervention payments, represented about 30 per cent of total wallets so far.
“These wallets were created in response to the request from the ministry as part of plans for the next tranche of the conditional cash transfer programme, which is scheduled for second quarter of 2023.
“Within the last 18 months when the enaira was launched, we have recorded over 13 million wallets. And these wallets are categorised based on their level of usage. With more 12,6 million at tier zero 11,354 at Tier one 367,000 at tier two to 9649 at tier three.
“There are other good and encouraging data that will say like the number of E wallets which is about 13 million, the value of enaira transactions has reached almost N22 billion, which is a 68% increase since the beginning of this year over N10 billion of it had been minted, and then about N3.429 billion of it is currently in circulation. So I will say 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 that enaira remains one portable option for you to adopt.”
Consequently, Nigeria’s Currency in circulation (CIC) in Nigeria dipped by 235.03 per cent to 982.09 billion at the end of February 2023 from 3.29 trillion announced by the Central Bank of Nigeria (CBN) in October 2022 on the heels of the Naira redesign policy.
The latest figures from the apex bank showed that 2.3 trillion had been withdrawn from circulation from October 2022 to February 2023.
One of the justifications CBN gave for its cashless Policy implementation was because of too much cash in circulation, which led to the redesigning of N200, N500, and N1000.
The policy implementation resulted in acute naira scarcity and prolonged hardship for Nigerians, not until back-peddled by authorizing the use of the old notes in line with the Supreme Court’s ruling validating its acceptance till December 31.
READ ALSO: “Tinubu holding a dud certificate” – Yusuf Datti makes
According to the CBN, the currency in circulation moved from N3.16tn to N3.29tn and N1.38tn in November 2022, December 2022 and January 2023, respectively.
In perspective, currency-in-circulation is defined as currency outside the central bank’s vaults; that is, all legal tender currency in the hands of the public and in the vaults of the Deposit Money Banks (DMBs).
Leave a Comment
You must be logged in to post a comment.