Abdulwahab Isa …MPC hikes lending rate by 150 points to 26.25 % to rein inflation, allays Fintechs operators fear
The Governor of the Central Bank of Nigeria (CBN), Mr Olayemi Cardoso said the feedback and tracking on the economy by the Foreign Direct Investors suggest Nigeria’s economy is on the right course, engendering confidence amongst international investors.
He noted that different circulars and policy initiatives and the clearing of forex backlog by the bank were aimed at instilling confidence in the system.
However, the governor likened Nigera’s market to other markets in the globe that permit free entry and exit. His clarification came on the backdrop of a recent interview by Financial Times purporting that, Foreign Direct Investors were warring for entry into Nigeria market. Cardoso debunked the claim on Tuesday while briefing in Abuja at the end of the 295 session of the Monetary Policy Committee (MPC) meeting.
“On the issue of hesitancy of investors to enter, that’s the case with any market with free entry and exists. That is what you expect in every market whether foreign exchange or stock market, this is how it works in the financial market. What we’ve seen is, yes portfolio investors do come, and at a certain level they go out again.
“They come in and go out again and that is normal. The bigger issue is the issue of confidence in the market. At the end of the day, if there’s no confidence in the market, then we have a problem. And I can say on any occasion, from the feedback we’ve been getting, we had a considerable amount of dialogue with investors starting from the time I came to the bank and this could be something that has been consistent. They have a pretty good feel of what the requirements are .
“We have attempted as much as possible to make the market more transparent. Transparency is of course what foreign portfolio investors want to see which gives them their confidence, and we have seen that they have responded very positively to the transparency initiative and that has given a considerable amount of confidence to them”.
” The success we all know about which over time has resulted in the multiplicity of different circulars to address certain things has also helped in no small measures to remove that so the confidence can come back. And of course the issue of backlog which was something that I have said many times that we have to prioritize the issue of backlog to give confidence to those who were looking to come in because if you have a backlog, they want you to clear it before they come and invest.
“Secondly, if there’s a backlog and nobody knows where you stand on it, it can create unnecessary anxiety and that is why we deemed it fit to prioritize the clearance of those backlogs. Collectively what we’ve seen is a renewed, continuous interest in investing in the country”, he stated.
At yesterday’s MPC meeting, to further rein in inflation, all twelve members in attendance voted unanimously to raise the Monetary Policy Rate (baseline interest rate which banks use to set their interest rates) by 150 basis points to 26.25 per cent from 24.75 per cent previous position. The committee retains an asymmetric corridor around the MPR at +100/-300 basis points, retains the Cash Reserve Ratio of Deposit Money Banks at 45.00 per cent, and retains the Liquidity Ratio at 30.00 per cent.
Speaking to the persistent rise in inflation, despite CBN’s continuous tightening measures, Cardoso was optimistic the decision will pave off soon.
He said: ” I think it’s important to say that yes, in terms of looking at the inflationary figure, we agree that inflation is becoming more and more of an issue. Any type of inflation in my view is an issue. However, I think there is light at the end of the tunnel, and that is because much as we see an increase in inflationary pressure (figures), when you go down to the specifics in terms of food, headline inflation is modulating and decelerating in increments.
“That’s good news because, for the first time since October, we have seen relatively significant modulation in components of inflation. It shows the tool CBN is using is working.
“There’s no magic wand, these are things that need to take their own time. They pass through and affect measures. In advanced and developing countries, they take time. I’m confident and the figure shows that we are beginning to get some relief, and I believe that in another couple of months or so we will see more positive outcomes”.
With regards to banking sector re-capitalization, Cardoso declared Nigera’s banking sector strong and resilient.
“We are looking forward to it, we need the banking industry to be stronger and more robust considering particularly the one trillion dollar economy that the federal government is anchoring itself towards.
“We need a stronger banking system; we need a banking system to have sufficient shock absorbers in the case of any uncertainty within the domestic and international ecosystem.
“A Lot of what has happened worldwide in the past and in recent times nobody would have predicted any of it. All the relatively strong attacks that have been taking place in the financial ecosystem have been greatly challenging.
“It’s important that we get ourselves ready in case there are other ones, we will be in a position to withstand them”.
He allayed fears of Fintechs on the bank’s recent policy halting onboarding of new customers until the conclusion of registration of formalities with the Corporate Affairs Commission ( CAC). Cardoso said CBN action wasn’t targeted to eliminate Fintechs, but rather to protect them.
” The fintechs have definitely, not been singled out or given an exceptional kind of treatment. I want to assure you that what has been out there recently is far from the truth. We are very proud of what the fintechs have been able to do over the years for the country, and the positive impact that it’s having not just in the country but globally.
It’s for us to support them and help strengthen them. However, remuneration is very critical in a sector that seems to have grown very rapidly. We have cause to take a deep dive and look at the whole issue of illicit flows and money laundering particularly within the heavily regulated banking system. We all know some of the issues that came up with crypto, and some of the messages that we put out after which gave us some cause to know that there’s a need for heightened surveillance.
Again, we are very happy that we’ve been able to have a very major handshake with the law enforcement agencies which has helped to identify where leakages are, and the places where we need to tighten our regulations and surveillance.
“We were concerned, with respect to how we solve the issue of anti-money laundering, and illicit flows as they make their way within various sub-sectors of the financial industry. We felt there was a need for us to take a breather, and see how we could work with the different players to strengthen their relations.
It’s not by any means to throw them out of business. As of this point in time, we have not revoked the licenses of any of the fintech organizations. We’ve looked and had conversations with a number of them and they claimed that there is a need to have a normal look which is what we are doing now; to see how we can strengthen them.
Who benefits or loses from this? If you get it wrong or right, it will affect the public. So we are doing all we can, to ensure that it will benefit the general public and we set down to bring out measures that will help that sector to tighten up. I’m confident that in a couple of months, all these will be a thing of the past” the CBN governor said.
Cardoso said MPC commended the bank for the recent approval of licenses of fourteen international Money Transfer operators (IMTOs). The decision he said was expected to improve competition and lower the cost of transactions, thus attracting more remittances through formal channels.
“The Committee noted with satisfaction that the banking system remains safe, sound, and stable, despite the headwinds confronting the economy. It commended the recent re-capitalization initiative and urged the management to sustain its regulatory oversight to ensure the continued stability of the banking
system. Members focused on the best policy approach to continue to guide the economy towards achieving an overall macroeconomic balance”.
