To control intractable inflation, the Central Bank of Nigeria (CBN) raised interest rates by 25 basis points on Tuesday, continuing its hawkish approach.
Because of the rising cost of food and petrol, the CBN increased the benchmark interest rate to 27.50 percent after the Monetary Policy Committee meeting.
The apex bank is increasing rates for the sixth time this year.
MPC chief Cardoso stated, “Members praised the Federal Government’s efforts for the improved security, especially in the North-East of the country, which would likely improve food production, even though food prices remain a key contributor to the uptick.”
“The Committee also recognised the impact of rising energy prices on the general price level due to their effect on production variables. The recent price increase in Premium Motor Spirit (PMS) has also had an influence on the cost of producing and distributing food and manufactured goods.”
Cardoso also disclosed that foreign reserves, which can cover 17 months’ worth of imports, increased slightly to $40.88 billion as of November 21, 2024, from $40.06 billion at the end of October 2024.
Other Significant Decisions
The MPC maintained the asymmetric corridor around the MPR at +500/-100 basis points. Additionally, it kept merchant banks’ cash reserve ratio (CRR) at 16 percent and deposit money banks’ at 50 percent.
Additionally, it kept the liquidity ratio at 30%. Cardoso stated that despite major exogenous and internal obstacles, MPC members expressed satisfaction with the financial system’s ongoing stability and resilience.
However, they urged the CBN to closely monitor the banking sector to ensure that regulatory criteria are met and the industry remains healthy.
Inflation And FX Pressures To Ease In Early 2025
Cardoso asserts that the CBN will use all “orthodox” methods to control inflation, with the clear belief that continued monetary tightening will start to have benefits early in the next year.
Cardoso gave remarks at a news conference in Abuja to reveal the results of the Monetary Policy Committee’s (MPC) two-day meeting. As of October 2024, inflation was 33.88 percent.
According to the National Bureau of Statistics (NBS), the inflation rate increased for a second consecutive month, from 32.7 percent in September to 33.88 percent in October.
“The Central Bank is resolute and committed to continuing to fight the war against inflation and there is no going back on that.
“We will use every weapon in our toolbox to make sure we can subdue it. And, of course, this means a return to traditional monetary policy,” Cardoso said amid concerns about the impact of rising interest rates on the economy.
Cardoso was confident that the lag effect would allow present policies to control prices in the upcoming months.
“It is important for people to understand that there is a time lag between when you implement policies and when they have an impact. The time lag might range from six to nine months to nearly a year. Our own expectation is to see better outcomes in the first quarter of 2025.”
He added that the apex bank is working closely with some of the pertinent agencies to ensure that structural barriers to growth are dealt with properly.
Nigerians Compelled To Use Charcoal Due To Energy Costs
The rising renewable energy prices have compelled Nigerians to switch back to burning fuelwood and charcoal.
Nearly 67.8% of Nigerian homes have resumed using fuelwood, while 21.6% still rely on charcoal, according to the NBS’s 2024 Nigeria Residential Energy Demand-Side Survey (NREDSS) report. The survey found that one in five households currently rely on charcoal as their main energy source.
Experts say fuelwood and charcoal are bad for the environment and people’s health.
A 12.5 kg cylinder of LPG now costs an average of N16,000, up from N9,000 just a year ago. This is a more than 65 percent increase in price in the last year.
More and more families are choosing these older, less expensive options as long as energy prices stay high.
“Cooking with firewood is the biggest developmental hurdle we face in Nigeria. Before we get into the environmental implications, this is a matter of life and death”, said Igwebuike Stanley Ijeoma, a member of the World Council for Renewable Energy’s (WCRE) Committee of Chairs and CEO of Schrodinger Greentech.
“According to the World Health Organisation, over 93,000 women in Nigeria die each year from respiratory issues caused by soot and smoke inhalation from firewood burning. Our wonderful women are dying as a result of this. This is a huge challenge,” Ijeoma added.
Samuel Ade, a physician based in Abuja, pointed out that cooking with charcoal and firewood presents significant health risks, especially respiratory conditions, as people inhale soot and other detrimental combustion byproducts.
Uche Uwaleke, a professor of capital markets at Nasarawa State University, Keffi, stated: “The weak performance of the Agric and manufacturing sectors as indicated in the NBS Q3 GDP report may not be unconnected with rising interest and exchange rates.”
He expressed hope that the marginal rate increase is a sign that the apex bank will completely pause or apply the brake in the monetary policy rate (MPR) or benchmark interest rate increase starting in the first quarter of next year.
