Too much money for the economy to absorb – CBN – WorldStage
WorldStage Newsonline– The Central Bank of Nigeria (CBN) has defended the decision of the Monetary Policy Committee (MPC) to raise the Monetary Policy Rate (MPR), saying the amount of money in the system was too large to the economy can absorb it.
Hassan Mahmoud, CBN Director, Monetary Policy Department, said this on Wednesday during a post-MPC briefing titled: “Unveiling the facts behind the numbers.”
The MPC, at its 287th meeting on Tuesday, had raised the MPR by 150 basis points, from 14% to 15.5%.
The MPR is the base interest rate in an economy on which other interest rates within that economy are built.
CBN Governor Mr. Godwin Emefiele had said the decision was informed by a persistently rising inflation rate and fragile economic growth.
According to Mahmud, the MPC has reached a point where strict measures must be taken to control inflation.
He said the committee took cognizance of global and local economic issues to arrive at its policy decisions.
“We raised the MPR because it is necessary to do so. The amount of money in the system was too much for the economy to absorb,” he said.
He said monetary policy tools were meant to deal with short-term risks, adding that the idea was to make the cost of funds expensive to bring down inflation.
According to Mahmud, the incentives governments around the world have provided to their citizens during COVID-19 have increased people’s ability to spend, creating challenges with global sourcing.
“Many households and small businesses have received stimuli; the United States made two trillion dollars, Nigeria about five trillion naira, which increased people’s ability to spend.
“But the supply could not meet the demand because this injection volume was much higher than the regular supply for these savings, which drove up the prices,” he said.
He also blamed the Russian-Ukrainian war, as well as the resurgence of COVID-19 in China, as responsible for the increase in the global inflationary trend.
“This region accounts for more than 50% of the world’s raw material supply and 38% of the world’s oil and gas supply.
“The war led to shortages which drove up prices.
“Then the COVID-19 lockdown in China. The country is the biggest importer of raw materials across the world,” he said.
Speaking on the apex bank’s various economic intervention initiatives and the prospect of recouping the funds, Dr. Yusuf Yila, Director of the Development Finance Department, said about Nine trillion naira had been invested in the various development financing interventions.
He said, however, that all funds would be recovered.
According to Yila, 9.3 trillion naira has been invested in various development finance interventions, of which 3.7 trillion naira has been repaid.
“Most loans are still under moratorium, especially those in the manufacturing sector. Manufacturing makes up the largest portion of our portfolio, around 31%,” he said.
He, however, said that one of the most successful interventions was the Commercial Agriculture Credit Scheme (CACS), where out of the N800 billion loaned, around N700 billion had been repaid.
Yila said that through the flagship agricultural intervention program, the Anchor Borrowers Scheme, N1 trillion has been lent to smallholder farmers, while around N400 billion has so far been recovered.
According to him, the ministry will limit intervention for the time being to critical sectors such as SMEs and the electricity sector.
Speaking on the depreciation of the naira, the director of the trade and foreign exchange department, Ms. Ozoemena Nnaji, said the apex bank was taking steps to strengthen the currency.
Nnaji said the demand for foreign currencies exceeded the supply of currencies, adding that the CBN was doing a lot to mop up the supply.
“One of the milestones is the Naira for Dollar remittance campaign, which has led to a huge increase in remittances from the Diaspora.
“There is also the RT200 which brings the forex. Repatriations increased from $20 million in the first quarter to around $600 million in the second quarter. “During this third quarter, we are looking at over $1 billion in repatriated inflows,” she said.