In the face of a marginal increase in Nigeria’s inflation rate to 27.33% in October, the Central Bank of Nigeria (CBN) is doubling down on its monetary policies to address the economic challenges. Isa AbdulMumin, Director of the Corporate Communications Department at the CBN, asserted that the incremental rise, up by 0.61% from September’s 26.72%, is a testament to the slow but effective influence of the central bank’s ongoing financial reforms.

AbdulMumin, expressing confidence in the CBN’s strategies, emphasized the positive impact of its measures on the money market, particularly in October. He stated, “The slight rise in prices during this period signifies that the bank’s policies are yielding the desired results.”

The central bank’s primary objectives are currency stabilization and inflation reduction. To achieve these goals, the CBN has implemented robust measures, including adjustments to liquidity tools. The Open Buy Back rates, for instance, have experienced a significant surge from less than one percent in August to the expected levels, showcasing the proactive approach of the central bank.

The CBN, as a key player in Nigeria’s financial system, employs various tools to manage monetary policies contributing to economic stability. One such instrument is the Standing Deposit Facility (SDF) policy, designed to regulate liquidity in the banking sector.

AbdulMumin highlighted the significance of the SDF policy, stating that it acts as a repository where banks can deposit funds overnight with the central bank, earning interest on these deposits. The primary objective is to exert control and stability over liquidity in the banking system. By providing a secure and interest-bearing avenue for banks to park surplus funds, the CBN aims to influence the money supply, contributing to the maintenance of price stability.

The interest rates associated with SDF deposits are meticulously determined by the CBN, serving as a motivating factor for banks to either deposit or withdraw funds based on prevailing economic conditions. Participation in the SDF is open to commercial banks and other financial institutions operating within Nigeria, offering a flexible mechanism to efficiently manage their daily liquidity requirements.

In addition to the SDF, the CBN utilizes Open Market Operations (OMO) as a policy tool, involving the buying and selling of government securities in the open market. This strategic move impacts the money supply, influencing interest rates and proving invaluable in combating inflation. Purchasing securities bolsters the money supply, leading to lower interest rates, while selling securities achieves the opposite effect, pushing interest rates upward. OMO, with a focus on treasury bills and bonds, plays a crucial role in creating a stable and predictable economic environment, including impacting the exchange rate.