Blame Buhari For Current Economic Hardship – CBN Governor

Central Bank of Nigeria Governor (CBN) Olayemi Cardoso has blamed the current economic hardship on the poor handling of the nation’s economy between 2015 and 2023, adding that present administration at the centre inherited a highly distorted economy.

The period Cardoso referred to was the two term tenure of President Muhammadu Buhari.

The CBN governor said the current administration came “into a very loose money supply situation.”

According to him, the past eight years witnessed an incredible amount of pumping of liquidity into the system, a reason, he said, largely caused the spike in inflation rate and nationwide economic hardship.

“In 2015, money supply was about N19 trillion. And in 2023, it was N54 trillion. That’s a huge increase, a very, very huge increase, and a substantial amount of that was through Ways and Means,” Mr Cardoso said at a media briefing to disclose the decisions of the September edition of Monetary Policy Committee meeting of the apex bank in Abuja.

According to him, the printing of N35 trillion resulted in a huge amount of money in circulation which translated to too much money chasing the same amount of goods.

The CBN governor stated that the while the economy, on average, was growing at 1.2 percent during that time, the money supply was growing at 12.6 percent. He also blamed the situation on the collapse of the prices of oil and exchange rate fluctuation.

On Thursday, the 11 members of the MPC unanimously voted to raise the benchmark monetary policy rate (MPR) by 50 percent basis points to 27.25 percent from 26.75 percent, a move that is expected to deepen the cost of funds for the real or manufacturing sector of the economy.

Cardoso believes that the recent policy decisions of the central bank, including the clearing of foreign exchange backlog and rates tightening for the eighth time in one year, are helping to restore investors’ confidence in the economy.

“The numbers clearly show that we are heading in the right direction,” he told reporters yesterday.

The Monetary Policy Committee also voted to raise Cash Reserve Ratio (CRR) by 50 basis points from 45 percent to 50 percent for Deposit Money Banks (DMBs), and from 14 percent to 16 percent for Merchant Banks. The committee retained the Liquidity Ratio (LR) at 30 percent and Asymmetric Corridor at +500/-100 basis points around the MPR.

Mr Cardoso said the continued growth in the money supply indicates the need to curtail excess liquidity in the system and address foreign exchange demand pressures.

He further said the monetary authority was faced with no option but to engage in what has been largely described as tough economic decisions that created the current economic crisis.

“I accept that they may be tough, they really may be tough, but I’ve taken things to give you this background to understand that we have no choice but to deploy these tools to ensure that we can rein in the excess liquidity that has been in the system, the high inflation that has resulted to from all these,” he said.

The MPC said much more is required to actualise the Bank’s price stability mandate but reiterated the need to collaborate closely with the fiscal authority to address the current upward pressure on energy prices.

The MPC members were also concerned about the growing fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through Ways & Means.

In justifying the MPC’s decision to further tighten rates, Cardoso said members deliberated on the optimal policy option to sustain the downward trend in price development, contain emerging risks to inflation, stabilise the exchange rate, safeguard the banking system, and shield the recovery of output growth.

MPC said efforts must be sustained to achieve a positive real interest rate to attract investments into the economy. This would enhance the economy’s competitiveness for international capital, thereby improving the exchange rate.

The MPC applauded the federal government’s ongoing effort to bridge the food supply deficit through the duty-free import window for food commodities. The Committee also expressed optimism that the lifting of refined petroleum products from Dangote refinery will moderate transportation costs and significantly support the easing of food price pressures in the short to medium term.

This is also expected to moderate foreign exchange demand for the importation of refined petroleum products, with a positive spillover on external reserves and an improvement in the overall balance of payment.

MPC Decisions Detrimental To Investment, Economic Growth – CPPE

Stakeholders who reacted to the decisions of the MPC raised concerns over the 27.25 per cent increase in benchmark interest rate.

The director/CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, stated that the CBN’s decision to tighten the monetary policy further is detrimental to investment and economic growth.

Yusuf said, “It is quite troubling that at a time when manufacturers, entrepreneurs, and other investors in the economy are craving a breath of fresh air, the CBN chose to tighten the noose on them by resorting to a further tightening of monetary policy.

“The latest policy choice of the apex bank is at variance with the mood of most economic players and the desire to promote economic recovery and growth. What manufacturers and other investors need at this time is some oxygen and stimulus, not policy measures that would worsen an already suffocating situation.

He explained that MPR at 27.25 per cent, CRR at 50 per cent, and the asymmetric corridor at +500 and -100 are very difficult monetary conditions for most businesses, given the prevailing macroeconomic and structural conditions.

He noted that “the second quarter GDP numbers showed clearly that the economy was still in a floundering mode as many critical sectors of the economy slowed. These include manufacturing and other subsectors of the industrial sector, such as cement, food and beverage, chemicals and pharmaceuticals, trade, ICT and real estate.

“The road transport, motor assembly, publishing and motion pictures sectors contracted during the quarter. The aviation, oil refining, textile, livestock and quarry and minerals sector were still in recession. Tightening financial conditions in the circumstances does not seem appropriate.

“The private sector should not be made to pay the price of liquidity growth, for which they were not responsible. Issues of excess liquidity should be addressed within a causative context. The injection of liquidity into the system is largely public-sector driven, as rightly noted by the CBN governor. Therefore, the focus of resolving it should be within that context. Stifling the financial conditions to address liquidity issues is detrimental to the investment and growth of the economy.

“The implications of the latest MPC decision for investors are quite concerning as cost funds would be further exacerbated, possibly well above 35 per cent or more. It is made worse by the increase in CRR to 50 per cent and retention of the asymmetric corridor of +500 and -100.

“We believe that the policy decisions of the CBN are most inappropriate for the prevailing economic conditions and the challenges faced by entrepreneurs in the country.

“The operating and production costs of businesses would be further exacerbated by the latest monetary policy tightening. The increase in CRR to 50 per cent would constrain financial intermediation with negative consequences for the banking system and the economy,” he said.

On his part, the president, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) Dele Kelvin Oye said the decision burdens businesses with higher loan costs, exacerbating their struggles and failing to curb inflation or stabilise the naira.

“We urge the CBN to engage with stakeholders for a collaborative approach, considering alternatives like targeted sector support, deficit reduction, and promoting local production.

“A reassessment of strategies is essential to ensure effective economic management and sustainable growth in Nigeria. Dialogue and innovative solutions are crucial for repositioning our economy.

“The increase is 50bps. It is not a material change. The narrative is actually the trend upwards. This confirms that the previous high interest rate has not worked.”