CBN Plans Additional Measures On Inflation, Hikes Interest Rate, Reduces Volume Of Notes In Circulation 

The Central Bank of Nigeria (CBN) is planning to reduce the volume of N500 and N1000 notes in circulation “over time” to tackle the menace of inflation which has drastically reduced the purchasing power of Nigerians.

CBN had recently confirmed that N500 and N1000 notes are the most counterfeited banknotes in the country.

This is even as the bank’s  Monetary Policy Committee (MPC) on Tuesday raised its benchmark interest rate by 100 basis points to 16.5 percent from 15.5 percent previously.

CBN governor, Godwin Emefiele, during post meeting briefing at the monetary policy communique held on November 22nd, 2022, acknowledged the  ease of counterfeiting one thousand and five hundred naira notes.

Emefiele said the effort is aimed at curbing the inflation rate which he partly blamed on the higher-denominated naira notes.

Buttressing his argument, he said, “In the UK they have a denomination in 50 pounds but the most spent denomination is 20 pounds. Nobody spends 50 pounds. If you go around carrying 50 pounds in the UK they will suspect sic report you in fact.”
And then compared this with Nigeria…“The reverse is what is happening in here. Nigerians want to carry N500 and N1000. And in fact, we are beginning to think that increasing the high denomination is also part of what is fueling inflation. So in fact, yes we will launch N200, N500, and N1000, over time, we will reduce the volume of N500 and N1000 in circulation. Let people carry N50 around. “

According to the number one central banker, resort to
electronic banking is the answer.

 “if you want to do high-value transactions, embrace online, embrace our agency program, embrace our mobile banking program, that is what you need”.

Some analysts said last night that, some of the implications would be that businesses that rely heavily on cash will be severely affected as they will need to carry a larger volume of smaller-denominated notes to facilitate transactions.

This, according to them, will further compound the insecurity issues bedevilling the country.

Banks and other online operators may be favoured as the policy will push for more online transactions.

Politicians who are mostly associated with cash-based transactions, especially during elections will be adversely affected as they will need to do with smaller denominations or find other alternatives for funding cash-based election expenses.

Emefiele admitted that the majority of rate-setting committee members voted for the increase in the Monetary Policy Rate (MPR).

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His words:
“With a rise in inflation, loosening the stance of policy will lead to a more aggressive rise in inflation and will erode that gain already achieved through tightening as regards whether to hold MPC was of the view that they won’t stand at the period close to December festive and expected heavy spending during 2023 general election,”.

Continuing, he said,
“MPC decided to continue to tighten, but at a somewhat more moderated rate, noting that tightening the stance of policy would narrow the negative real effective interest rate margin and force to improve market sentiment and further restore investors confidence.”