Analysis: Why CBN Retained Interest Rate, Other Parameters At MPC Meeting

[00:00:01]Now the monetary policy committee of the central bank of Nigeria voted to retain all key monetary parameters at current levels uh at the end of its July meeting. Now the committee had a monetary policy rate at 26.5% maintained their symmetric corridor at plus 550 and minus 450 basis points around the NPR retain the cash reserve ratio at 40% for commercial banks 16% for merchant banks has more.

[00:00:33]Nigeria's monetary policy committee is staying the course, holding key rates steady as it navigates a mix of domestic and global pressures. According to the CBN, global uncertainties remain a major concern from rising crude oil prices to ongoing geopolitical tensions, particularly the prolonged crisis in the Middle East. The committee's decision to maintain the current policy stance followed a thorough assessment of the balance of risks.

[00:01:09]Although they headline inflation moderated marginally in June 2026, global uncertainties have heightened due mainly to the renewed hostilities in the Middle East.

[00:01:29]In view of the evolving developments, maintaining a cautious monetary policy stance remains appropriate.

[00:01:39]>> The CBN says while inflation indicators, headline food and core continue to fluctuate, current policy measures are expected to gradually anchor prices over time. Available evidence suggests that the Nigerian economy has remained largely resilient to the external shocks, reflecting the gains from prior reforms implemented by the fiscal and monetary authorities.

[00:02:14]However, maintaining the current monetary policy stance will provide an opportunity to closely monitor incoming data and assess the trajectory of inflation to guide future policy decisions. On regulatory actions, the governor addressed concerns around micro finance banks, attributing recent interventions to ongoing monitoring and evaluation aimed at strengthening the financial system. The MPC welcomed the positive outcome of the banking sector recapitalization exercise, noting the improvement in the resilience of the banking system as reflected in key credential and financial soundness indicators.

[00:03:10]It nevertheless urged the bank to sustain effective surveillance to preserve financial sector soundness and mitigate potential risks to financial stability.

[00:03:27]>> Looking ahead, the central bank project output growth will remain resilient through 2026, supported largely by improved crude oil production. However, it warns of risk from global inflationary trends and volatile energy prices in the coming days.

[00:03:47]TV news Abuja.

[00:03:50]>> Well, it's no more news. The central bank has retained NPR at 26.5%.

[00:03:55]Yes, that's it. According to the Apex Bank and reasons for this development, uh let's look at it more of the decision. CRR 45% for deposit money banks. Uh that's cash reser reserve ratio 16% for merchant banks. Now the standing facility corridor plus 50 and um -450 basis points that's around the MPR nonTSA public deposits 75%. that a lot of considerations at that meeting yesterday uh where the CBN governor uh ruled out uh this communicate after the two today meeting but let's get to talk more about this and my guest is chief consultant bid associates limited professor abod all right thank you for staying with us prof uh it's good to have you on the show I was speaking with regards to the monetary policy committee keeping all rates what do you think informed this decision and what does it signal about the current state of the economy.

[00:04:57]Yeah, thank you so very much to I think clearly it's a decision in my own view that took the right account of the state of the economy and the outlook and of course looking at what is happening globally and how that is affecting Nigerian economy clearly that's in my own view the direction the central bank monetary policy committee should go and what it means simply is this that if you look at the major risk that is triggering economic shocks all over the world now and that the conflict in the Middle East. The four commodities affected primarily Nigeria is independent of importing them. So which means that what would have been the impact of that on Niger economy we were able to avoid that but largely in fact is the fact that we now refine petro Nigeria that's that refinery and maybe the two other refinery that operating so given that position our dependence on imported crude whose price I mean imported refined products which price would have gone up significantly because of this conflict we have been saved from that. So now coming back home also if you look at the trajectory of inflation rate between March and June it shows clearly also that the increase has [clears throat] not been any significant in February we have 15.08% 0% inflation rate. But when this cris began on the 28th of February up until date, the inflation rate in Nigeria has not increased significantly as we saw in other countries. So which means there is some measure of space for monetary policy stability and if you like some will also argue that we're already at a threshold of easing. So but of course like the CB governor said in reading the communicate of the committee's meeting that the monetary policy authorities will maintain a cautious position cautious in the sense that we keep watching all the key variables. Now for Nigeria, I must mention this. One other good thing that is going well for us is the fact that the major driver of core inflation is exchange rate stability and the nar exchange value has been stable for several months at a go. So which means that what would have triggered inflationary pressure that will be of concern to central bank and the rest of us has not actually materialized. So all the data point positive external results for example at over 11 months cover where we need a minimum of 3 months is also quite positive. We look again at the stock market there again in June Nigeria coming up ahead of you know South Korean Cosby to become the stock market that was rated number one in terms of dollar returns. So all of these are going well for Nigeria and so to that extent therefore I align with the MPC that what the CB should continue to do is to watch these variables as they evolve. But as it were it means really they should maintain all these reserve requirements and of course the monetary policy rate as they were. But do you believe keeping rates unchanged will be enough to bring inflation under control or are there additional fiscal measures needed?

[00:08:32]No, by all means there are additional fiscal measures needed. In fact, inflation in Nigeria is more structural than monitoring you know in nature which means moving the monetary policy rate is not enough to put inflation under control in Nigeria. So means then that there has to be collaboration maybe let me put it this way stronger because like the CB governor mentioned in that communicate there's already collaboration between the fiscal and monetary authorities but that has to be also deepened but for me most importantly is to deal with food inflation which have been the major major driver of inflation in Nigeria and you notice for June it ticked up you know to above 17%. which means that is an area we need to give a lot more attention to. In any case, we have entered the you know harvest season as it were. New y is already coming into the market and of course we see some other staples local staples also coming to the market. So that will dampen the prices that we have seen in the last few months. But what is more important for me is not just the episodic dampening of price of food stuffs because of harvest but can we sustain that you know all through the year and that is where I think the fiscal authorities should give a lot more attention to sustaining staple food prices over you know an extended period of time beyond the harvest period.

[00:10:03]Now interesting stuff I would say an interesting times ahead. How is this decision likely to affect businesses now particularly you know where I'm headed manufacturers uhmemes that have been grappling with high borrowing cost and limited access to credit they will continue to cry and groan at this time.

[00:10:22]>> Unfortunately interest rates will still remain elevated because banks take their queue for the monetary policy rate. I normally refer to the NPR as a signal rate.

[00:10:33]>> Yeah.

[00:10:33]>> Which means whichever level puts it is a signal to the banks on what to do with their own lending and of course borrowing rate. Companies also borrow but they call it deposits. Okay. So which means that with the NPR unchanged then we may not see any movement in bank lending rate. It will still be elevated and that will mean high borrowing cost for borrowers especially you know corporate entities that will still remain a major challenge to them. But what that also poses to them as a challenge in strategies that they have to also again look at their initiatives and this is what I always advise companies to do. When you operate in an environment where the cost of doing business is high like now the cost of boring is also high. It means your primary focus will be how to grow your income and there are many things you can do in that regard and that's what I always tell them when you get to a point there's nothing you can do about cost of borrowing and cost of doing business then the next thing to do is to focus on revenue how do I grow revenue and there are many many options that you know the entities can actually explore and it's interesting also if you look at policy maners index is being above 50 which means business confidence is positive. In fact above 50 means there's business expansion. So if there business expansion the question I would pose to myself as a business owner or marriage that will be how do I also get my business to expand given this confidence level that is reported about the economy in general and don't forget so many entities also do this PMI you know survey monthly apart from that of CBN the CBN governor made reference to about 50 we see others you know for BTC I think quest nan bank and a couple of others But all of them point in the same direction just like the outlook for the economy this year. There is no outlook that say the economy will grow slower than 4%. So if the economy is growing stronger then I bring it home to myself and say the challenge is my own business also must grow stronger this year. So how then will it grow? That means I must interrogate my strategy and make some new initiatives and choices that can bring the result expected.

[00:12:55]>> Again, the impact of this MPC's decision uh what will he have on foreign exchange markets, investor confidence and capital inflows, especially as Nigeria continues its economic reforms.

[00:13:08]>> Very good question. Very good one. Now with NPR at that level what it means is that Naira assets will command high returns >> and that will make them attractive to investors both domestic and foreign. So the expectation then is that investor confidence will be sustained in narrow instrument. So we may therefore see that maintained for the second half of the year on the one hand. Now the other side to it is that if we look at the let me call it the trajectory of capital importation it has been very strong in 2026. So that also may not change because if we take PMI that we just discussed now and my reference to the stock market is performing and we take also the NPR still at 26.5%.

[00:14:01]making naira instruments attractive to investors. That means we may not see the trend with strong inflow of foreign portfol foreign direct investment which of course is slower in coming in than FBI's. So if that continues as well, we see an environment that continues to excite investors domestic and internationally. And I must also mention this as part of this conversation. We go back again to bank recitalization which the CB governor mentioned in that community. Now there's an aspect we should always remind ourselves about. If you look at the fresh capital injection into Nigan banking over 70% of that were from domestic investors which means the system locally is liquid. So and to that extent therefore any instrument that commands confidence will get investors troop in into it and that is in my view will help a lot in keeping Naira also stable.

[00:15:13]Apart from reference to the external reserves, there are also other things like the banking sector, how it is behaving, the economy itself, the interplay between demand and supply.

[00:15:25]Typically the the NRA historically would dampen in value in during summer between July and September. July is almost ended. So the NRA has remained fairly stable. Which means the outlook for the rest of the year is that the NRA will not lose value. take also into account what we call policy guidance. A statement issued by CDN governor some few weeks ago that looking at the rest of the year there is no reason for the NRA to be developed quickness officially and for those of us who track how it behaves in the market generally looking at 12 factor that drive movements in exchange rates. So NRA is looking very good for the rest of this year at least in terms of outlook. Now before I let you go uh looking ahead now what key economic indicators should Nigerians watch before the next MPC meeting? I know of course inflation must be part of it and under what conditions do you think the committee might consider either raising or lowering interest rates?

[00:16:23]>> Well for me as you rightly said inflation is number one because what the committee is running on is inflation targeting. So if we see inflation for July and August, those two months dampen like we saw some two years ago, okay, there is a possibility that the MPC might reduce the NPR in their September meeting and hopefully by then we should have the inflation data for July and August out. So if the what we saw two years ago repeats then there's a likelihood that the FPC will reduce the monetary policy rate but beyond inflation as rightly said if the NRA continues to remain stable as we have seen this July which usually is the commencement of pressure on the exchange value of the NRA if that is sustained there's a likelihood then that the CB will find another good reason to make to you know reduce the monetary policy rate And apart from that every other factor that I've mentioned is positive for Nigeria. We don't see a reversal of capital flows. So if that is also sustained then the CBM the NBC will not have any reason not to reduce the NPR and therefore give some breathing space to borrowers in the financial markets.

[00:17:46]>> Well it's a good way to leave Ramos.

[00:17:48]Thank you so much, Professor Bod, chief consultant, Bqu Li Associates Unlimited.

[00:17:53]Thank you for your time and for your patience. We appreciate this.

[00:17:57]>> Thank you for having me. Always interesting conversing with you.

[00:18:00]>> Thank you, profit. Enjoy the rest of your day, sir.

[00:18:04]>> All right. Down.