Central Bank maintains 26.5% interest rate, rules out foreign exchange market intervention

The Central Bank of Nigeria (CBN) has decided to maintain the Monetary Policy Rate (MPR) at 26.5 percent, with other monetary rate parameters remaining unchanged, as announced by Governor Olayemi Cardoso during a media briefing in Abuja.

n

The Standing Facility Corridor around the MPR was left at +50/-450 basis points, while the Cash Reserve Requirements (CRR) were retained at 45% for deposit money banks, 16% for merchant banks, and 75% for non-TSA public sector deposits.

n

According to Mr. Cardoso, the decision to retain the rates was based on a thorough assessment of risks to the outlook, taking into account the current macroeconomic environment and its ability to support a return to disinflation.

n

The MPC recognized that inflation has risen marginally for two consecutive months, largely due to external shocks, but expressed confidence that the current environment is robust enough to support a return to disinflation.

n

The committee noted the impact of the Middle East crises on energy prices, transportation, and logistics, but observed that the Nigerian economy has been largely insulated from the crisis due to prior policy reforms.

n

These reforms include exchange rate stability, improvements in external reserve buffers, strengthened monetary policy transmission, a well-capitalized banking system, and ongoing fiscal consolidation, which have significantly bolstered the economy's ability to absorb external shocks.

n

The pass-through of global commodity and energy price shocks to domestic inflation has been significantly mitigated due to these reforms, leading the MPC to conclude that the essential conditions for price stability remain firmly in place.

n

The committee therefore adopted a cautious and vigilant policy stance to anchor inflation expectations and safeguard macroeconomic stability, as announced by Mr. Cardoso during the media briefing.

n

The nation's Foreign Reserves have reached $49.49 billion, nearing the pre-Middle East crisis period level, with the capacity to accommodate nine months of import, according to Mr. Cardoso.

n

This development is expected to bolster investor confidence in the Nigerian economy, which is projected to remain resilient, with a positive outlook that may experience a moderate increase in inflation in the near-term due to external shocks.

n

However, Mr. Cardoso expressed optimism that the inflation increase would be temporary, and that with enhanced food supply, stable exchange rate, and other reforms, the economy would witness the expected growth.

n

The CBN has not intervened in the Foreign Exchange (FX) market, as the market is already deep enough to operate on its own, with the bank only meeting the needs of loan repayment or government agencies, allowing funds to flow in.

n

The CBN boss also announced that his team would remain proactive in addressing potential post-recapitalization risks to preserve financial system stability, following the recently concluded banking recapitalization.

n

Banks that have not met the recapitalization requirements due to regulatory and legal issues will be given an allowance to do so, while ensuring financial system stability, as stated by Mr. Cardoso.