IMF supports CBN CRR policy, proposes higher MPR

The International Monetary Fund (IMF) says it welcomes Nigeria’s central bank’s policy of tightening forex liquidity and raising the cash reserve requirement (CRR).

The IMF mentioned this in the concluding Statement of the 2022 Article IV Mission.

At the last monetary policy committee meeting held on the 27th of September 2022, Nigeria’s apex bank agreed to increase its benchmark monetary policy rate to 15.5% while also increasing the CRR by 32.5%.

The central bank took this decision as part of its collective strategy for addressing Nigeria’s galloping inflation rate. At that meeting, the members of the committee voted unanimously to raise the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR).

What IMF is saying: The International Monetary Fund (IMF) is thereby siding with the central bank’s policy of raising the rate by about 4% now (since May 2022).

• “The mission welcomed measures taken by the Central Bank of Nigeria (CBN) to tighten liquidity and curb inflationary pressures through increasing the monetary policy rate (MPR) by a cumulative 400 basis points and raising the cash reserve ratio (CRR).”
• The IMF also opines that despite the 400 basis point raise of the MPR, it is still well below the inflation rate suggesting that it is not enough to drive credit expansion.
• “However, overall conditions remain accommodative— the MPR is below inflation, and financing provided to the budget and the CBN’s directed lending schemes continue to drive strong monetary expansion.”
• In recommending the way forward, the IMF also suggested that the central bank should consider a further increase of the MPR “to send a tightening signal” as well as phasing out intervention programs which many have blamed for heating up the economy.

What this means: IMF’s support of the central bank’s tighter monetary policy will come as a huge boost to the apex bank which meets this week to decide on the next line of action in the fight against inflation.

• Analysts believe the central bank may consider another rate hike when it meets on Monday and Tuesday this week.
• This is also buttressed by Nigeria’s inflation rate which rose again to 21.09% denting the apex bank’s actions at curbing the rise.
• But while the central bank will like the IMF’s take on their policy, Nigerian banks will not.
• Commercial banks have suffered trillions of naira in central bank debits and have complained that this reduces their net interest income.

About the IMF Concluding Statement: A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. The IMF also claims the views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.