Market News

By Chinwendu Obienyi

•Says inflation fight on track despite global shocks

•CBN retains interest rates, banks’ reserve requirement

By Chinwendu Obienyi and Adanna Nnamani, Abuja

Governor, Central Bank of Nigeria (CBN), Olayemi Cardoso, has stated that the naira must remain market-driven and competitive rather than being artificially supported.

Cardoso’s remarks came after the International Monetary Fund (IMF) had said last month that the naira remains significantly undervalued despite recent gains against the United States dollar across official and parallel foreign exchange markets.

In its assessment of Nigeria’s economy, the Washington-based lender said the naira is trading about 25.6 per cent below its value based on the country’s economic fundamentals, even after recording a notable recovery following sweeping foreign exchange reforms introduced by the Federal Government.

Defending the CBN’s exchange-rate reforms, Cardoso, while fielding questions from newsmen after the end of the MPC meeting in Abuja on Tuesday, said the apex bank remained committed to a transparent, liquid foreign exchange market driven by willing buyers and willing sellers. “Our view is one of continuing on the path that we have embarked on, and that is to ensure that we have a market that is transparent, that is liquid, and one that has willing buyer, willing seller.

“At the present level, the country does need a competitive currency. The naira’s value has to be determined by economic fundamentals, including stronger oil and non-oil exports, increased foreign direct investment, improved domestic productivity and lower import dependence.

“We are very comfortable at the central bank that we have a fully functional market, a market that is open, that is transparent, a market that sometimes you find that on a daily basis, the amount of turnover is in excess of $1 billion and a market that is responding to the positive things that we are doing as a central bank”, Cardoso explained.

Briefing newsmen on the outcome of the MPC meeting, Cardoso said that the committee left the Monetary Policy Rate (MPR) at 26.5 per cent, while retaining the asymmetric corridor around the benchmark rate at +50/-450 basis points. He added that the committee also maintained the Cash Reserve Ratio (CRR) at 45 per cent for deposit money banks and 16 per cent for merchant banks, retained the 75 per cent CRR on non-Treasury Single Account public sector deposits and left the liquidity ratio unchanged at 30 per cent.

“The decision came as the committee weighed signs of easing domestic inflation against growing uncertainty from renewed hostilities in the Middle East, which it said could fuel higher global energy prices and feed into domestic inflation”, Cardoso said. Citing a modest easing in inflation as one reason for holding policy steady, the CBN Governor said that headline inflation slowed marginally to 15.91 per cent in June from 15.93 per cent in May, ending three consecutive months of increases. He also noted that core inflation also moderated to 15.92 per cent from 16.82 per cent, helped largely by exchange-rate stability, although food inflation accelerated to 17.52 per cent because of supply constraints in key food-producing areas and elevated transportation costs.

He said the moderation, though slight, suggested that the central bank’s aggressive tightening campaign was beginning to produce results, even as global developments complicated the inflation outlook. “We are pleased that inflation has moderated, albeit slightly. That gives us an indication that the tools we have implemented so far are bearing effect”, Cardoso said.

He acknowledged that the conflict in the Middle East had delayed the pace of disinflation the central bank had anticipated, but insisted that the CBN remains committed to restoring price stability.

“We will do what we need to do to ensure that we can contain rising inflation and bring it to the single digit that we have said earlier, and we still continue to stand by that,” Cardoso said.

>span class="s1">Highlighting improvements in broader macroeconomic indicators, Cardoso said Nigeria’s gross external reserves rose to $52.52 billion as of July 17 from $50.47 billion at the end of May, enough to cover about 11 months of imports, while the Purchasing Managers’ Index (PMI) returned to expansion territory at 50.1 in June.

He also reiterated the importance of closer coordination between fiscal and monetary authorities, saying stronger policy alignment would enhance the effectiveness of efforts to tame inflation, preserve macroeconomic stability and support sustainable economic growth.

While stating that the recent decline in bank lending is temporary, Cardoso attributed this to the withdrawal of COVID-era regulatory forbearance, banks restructuring their loan portfolios and ongoing capital strengthening following recapitalisation.

He maintained that lending should recover as banks complete the transition.

“The question as to why we do not have as many of them in circulation as may be perceived that some would want is a question of demand and supply. Quite frankly, where the ecosystem is moving as indeed we wanted to move to one of financial inclusion, where digitisation is becoming increasingly important to many. So, if there is no need for coins or for lesser denominations.

We set ourselves a very ambitious goal to increase. increase financial inclusion in the next two years. Hence, the CBN will continue pursuing greater financial inclusion through its payments strategy”, Cardoso concluded.