CBN still ruthlessly efficient at reining in money in circulation

Moses Obajemu

• At N1.956trn, October figures rose by just N30bn

The Central Bank of Nigeria (CBN) has continued to maintain its ruthless efficiency at reining in money in circulation with October figures showing a rise of just N30 billion over the figures for September.

Nigeria’s monetary authorities have set themselves an inflation bursting mandate, targeting single digit by the end of the year, although that is now looking less likely as a resurgence in inflation caused by high food prices following recent flood across the country, has been seen in the last two months, after several months of deceleration.

The CBN has pursued it desire to moderate inflation rate vigorously by having its hands spread out to control money in circulation, using every tolls available to it. Not a few analysts have accused it of appearing to be too fixated in the pursuit and execution of this mandate. Others rising to the CBN’s defence say in an election year, when politicians are expected to spend enormously and spike the volume of money in the open market, you couldn’t blame the monetary authorities for being extra cautious.

The bank’s regime of tight monetary policy reign with the underpinning   action against inflation and dysfunctional  macro economic consequences continues to record the predetermined fundamental objectives as general money supply remains moderate.

Since 2016 when the apex bank fixed the monetary policy rate (MPR) at 14 percent, no rate review has been done to underscore CBN’s resolve to tackle head on, potential factors capable of jeopardising the success of its mandate on general price stability.

A pointer to this is the trend of money in circulation in the last five months which has been moderate and which reinforces the alignment of monetary policy to inflation targeting and stable price level.

business a.m.’s analyses of the current scenario show that a total of N1.956 trillion was in the Nigerian economy during the month of October as against the sum of N1.925 trillion in September 2018, showing a marginal increase of N30 billion.

Similarly, the moderate and cautious profile of money supply in July and August was N1.824 trillion and N1.928 trillion, respectively, showing a deliberate effort to control money in circulation.

Currency is issued to deposit money banks through the branches of the CBN, and old notes retrieved through the same channel. Currency deposited in the CBN by the banks are processed and sorted to fit and unfit notes in line with the clean note policy. The clean notes are re-issued while the dirty notes are destroyed.

Realising that too much money in circulation could cause monetary policy instability, the apex bank has been employing various methods to mop up excess liquidity in the economy.

The CBN uses measures such as the Open Market Operation and sale of other sovereign securities which they issue on behalf of the government to raise money from members of the public. The efficiency of the system ensures that inflation has been kept in check as the CBN tries to maintain monetary stability.

All this will play into the meeting of the Monetary Policy committee (MPC), which opens today and is expected to last for two days. The committee is expected to do a thorough review of the macro-economic environment and consider, if necessary, a review of monetary policy rates review in view of impending events that could impact monetary stability.

The committee has kept all policy rates unchanged for a long time and many say its hawkish stance is likely to continue. It has retained key rates such money policy rate (MPR) at 14 percent; cash reserve ration (CRR) at 22.5 percent; liquidity ratio at 30 percent; with the asymmetric window around the MPR at +200/-500 basis points.

Analysts say the CBN has shown resilience to ward off calls for rate cut during the course of the year, with the CBN prioritising forex stability and keeping tabs on liquidity over a more robust economy.  The Nigerian apex bank used the sustained global uncertainties and fear of a stronger US dollar as excuses to maintain status quo.

Excerpt from the last MPC meeting showed that some members called for a rate hike even with a more favourable inflation rate, but amidst renewed pressure on the inflation rate, elevated food prices and growing election spending, coupled with the new minimum wage regime, more members might be leaning towards a rate hike.

Cowry Capital analysts suggested that the MPC will retain rate, given the rise of inflation and the need to maintain a positive real interest rate to maintan monery stability in the economy.