The Central Bank of Nigeria (CBN) has raised the monetary policy rate, known as the anchor interest rate, by 400 basis points to a record 22.75 percent from 18.5 percent.
The CBN Governor, Olayemi Cardoso disclosed this at the 293rd Meeting of the Monetary Policy Committee press briefing in Abuja.
He said the move was to ensure that the country’s soaring inflation rate, which stood at 29.90 percent in January, was moderated.
The apex bank has also announced the sale of foreign exchange to Bureau de Change (BDC) operators in the country.
This was contained in a memo issued on Tuesday and signed by Hassan Mahmud, the director of Trade and Exchange Department at the apex bank.
The development is happening more than two years after the former CBN governor, Godwin Emefiele, stopped the sales of foreign exchange to BDC operators in that segment of the forex market.
According to the memo, the move is part of CBN’s “strategic step” to increase liquidity and strengthen the naira against “manipulators”.
However, the new aggressive stance of CBN in raising the anchor interest rate, which determines what the banks charge on facilities to customers is in line with forecast of analysts, who in barely 24 hours ago predicted an increase in the rate at the end of Tuesday’s meeting.
The analysts also projected the MPC to make major decisions on banks’ capital requirements and liquidity ratios.
The bank also raised the Cash Reserve Ratio to 45 percent from 32.5 percent.
“We expect that this will moderate in the short to medium term. We intend to work closely with other organs of government to take the fiscal side of the inflation, especially regarding insecurity”, he said.
“As far as CBN is concerned, we are moving to a very aggressive regulatory environment”, he added, speaking on the implementation of its policy.
He said the bank will continue to make the market more liquid, warning that operators who are not willing to abide by regulations will face the consequences.
The last time the MPC raised interest rates was in July.
Business Standards reports that MPC held its first Meeting since Cardoso’s appointment with a move to tighten monetary policy measures.
The Chief Executive Officer of the Financial Derivatives Company, Bismarck Rewane, said the Central Bank Monetary Policy Committee will have no option but to tighten interest rates amid soaring inflation and economic hardship.
CBN Begins Sale Of Dollars
Mahmud, in the mo, noted that the CBN will sell the United States dollars to BDC operators at N1,301 per USD.
The BDC operators are expected to sell to customers at not more than 1% above the purchase rate from the CBN.
Recall that the naira recently traded as high as, even above N1,800 to the dollar.
Part of the statement reads: “Following the ongoing reforms in the foreign exchange market, aimed at achieving an appropriate market-determined exchange rate for the Naira, the Central Bank of Nigeria (CBN) has observed the continued price distortions at the retail end of the market, which is feeding into the parallel market and further widening the exchange rate premium.
“To this end, the CBN has approved the sale of foreign exchange to eligible Bureau De Change to meet the demand for invisible transactions. The sum of $20,000 is to be sold to each BDC at the rate of N1,301/$- (representing the lower band rate of executed spot transactions at NAFEM for the previous trading day, as of today, 27th February 2024).
“All BDCs are allowed to sell to end-users at a margin NOT MORE THAN one percent (1 percent) above the purchase rate from CBN.”
