CBN: Boosting economy with financial market stability

CBN actEmma Ujah, Abuja Bureau Chief Nigerians will remember 2024 as a very challenging one.

With inflation rate at 34.6 percent, Nigerians would love to put the year behind them, in a hurry.

The high rate of inflation had grave consequences for the socio-economic wellbeing of members of the public, including acute hunger with many families having finding it difficult to afford food.

To address the high inflation rate, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) in the year, had to raise interest rates to 26.25% in May 2024; followed by another 50 bp increase to 26.75% in July 2024. At its September 2024 meeting, the MPC, raised the MPR by 50 basis points to 27.25% and at the last meeting for 2024, it raised MPR to 27.50%. 

The rates hikes were predicated on the understanding that it would curb liquidity in the system, since the interest rate is viewed as one of the critical tools of a central bank to deal high inflation rate.

As the Governor noted in his address at the Annual Dinner of the Chartered Institute of Bankers of Nigeria (CIBN), “The measures implemented to curb inflation, coupled with foreign exchange market reforms, are bolstering Nigeria’s economic growth. In Q3 2024, the economy grew by 3.46%, compared to 2.54% in the same period in 2023. This growth was driven primarily by resilience in the services sector, particularly telecoms and financial services, which recorded a real growth of 5.17%, recovering from a 0.85% contraction in Q3 2023. Improved oil production and increased domestic refining also contributed to growth. However, agriculture and manufacturing continue to underperform. The manufacturing sector is particularly affected as the cost of funds became too high to borrow for both new businesses and for expansion of existing one.

Consequently, targeted support to these critical sectors is vital to reducing inflation, creating jobs, and boosting overall output.

“The case for economic diversification has never been more urgent – reliance on a single sector is simply unsustainable. The consequences of neglecting diversification are clear; as the saying goes, we cannot reap where we did not sow. At the Central Bank, we are committed to collaborating with fiscal authorities to foster growth across key sectors and deliver meaningful progress for all Nigerians.”

Economic Confidence and Stability

The CBN boss has always said that building confidence in the financial system and the Nigerian economy is one of his goals and has been consistent in the pursuit of the goal.  Under the current management, the CBN has implemented policies that foster confidence in the Nigerian economy, attracting foreign investors and encouraging business growth. The enhanced transparency has result in significant flows into the Nigeria economy from both foreign investors and Nigerians in the Diaspora.

In addition, the pace of inflation has slowed, with a notable decrease in inflation momentum.

FX Reforms

Foreign Exchange Market Reforms, especially the market unification has literally streamlined the foreign exchange (FX) market into a single framework, enhancing liquidity and reducing market distortions.

In the year under review, CBN cleared FX Forward Obligations backlog of $7 billion, stabilising the exchange rate and boosting market confidence.

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