Nigeria Begins 2-Day MPC Meeting With All Eyes on Cardoso, Naira

Nigeria’s central bank will begin a 2-day monetary policy committee (MPC) meeting under new Governor Olayemi Cardoso today with all eyes on the attempts to stabilise the naira and rein in galloping inflation.

The meeting will be one of six scheduled for this year, and here is what to expect.

Inflation Targeting

The Central Bank of Nigeria (CBN) may adopt an explicit inflation targeting regime to foster monetary and price stability.

Inflation targeting is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation. This is known as the target rate.

The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.

The country’s headline inflation moved to 29.90% percent in January 2024, according to the latest data released by the National Bureau of Statistics (NBS). 

Naira

Central Bank of Nigeria Governor Olayemi Cardoso last month described the country’s naira currency as “undervalued,” in his first public comments on the economy since November.

The Naira has weakened steeply in both the interbank and black market segments of the market since Cardoso took office.

Investors will be seeking clear policy statements to arrest the Naira’s slide.

Rate Hikes 

The central bank is expected to raise interest rates sharply when it meets this week.

Since taking office, Cardoso has hinted at a return to orthodox policies, a departure from his predecessor Godwin Emefiele, whose unorthodox approach to policy unnerved investors and led to a rapid slowdown in capital inflows into Nigeria.

Despite not raising its benchmark policy rate, tight money policies like regular Open Market Operations (OMO), Treasury Bill auctions and sustained Cash Reserve Requirement (CRR) debits, have helped to mop up excess liquidity from the banking system.

Bank Recapitalisation

Nigeria’s central bank has urged lenders to recapitalise their balance sheets in the face of high inflation, currency weakness and slow economic growth.

“We must make difficult decisions regarding capital adequacy,” Governor Olayemi Cardoso said last year in a speech at the Chartered Institute of Bankers of Nigeria’s annual dinner in Lagos.

“As the first steps, the central bank will be directing banks to increase their capital,” he said.

Investors will be looking for more clarity on the banks recapitalisation plans.

CRR

At 32.50 percent, Nigeria’s cash reserve ratio is one of the highest in the world and analysts have called for a cut in order to release long-term liquidity which will allow banks to lend out more funds to drive consumer spending and business investment which stimulates economic growth.

The CRR is cash that lenders are statutorily required to keep with the central bank of Nigeria (CBN), even as some of these monies are needed to help bolster liquidity and support economic recovery.

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