Contrary to speculations that the Central Bank of Nigeria (CBN) has burnt the old naira notes it withdrew from the system, Bismarck Rewane, Chief Executive Officer (CEO) of Financial Derivatives Company (FDC) Limited said, “total cash in circulation could increase by 20 per cent if all old notes are returned back to the economy.
Rewane who made this known in FDC’s post MPC report, explained that N3.2 trillion of old notes are expected to be added to N600 billion new naira notes printed by the apex bank. This, he said, will bring the total cash in circulation to N3.8 trillion.
“Before the next MPC meeting in May, we expect cash in circulation to increase, enabling business and consumer transactions. ATM queues will begin to reduce and over the counter cash will be available at banks”, said Rewane.
He warned that, with the ongoing, confidence in the banking system will remain weak, there will be increase in inflationary pressure, while the velocity of circulation will stay low.
Rewane noted that the Monetary Policy Rate (MPR) has been jerked up by 650bps since 2022, and warned that, there are consequences.
For one, he said, there will be marginal propensity to consume will decline, by about 0.8 per cent.
He added that the increase will make the naira stronger, increase the lending rates of banks to the economy, reduce stock prices, If treasury bill rates and savings rate increase. He said, average lending rates will be approximately 28-30 per cent per annum.
Expatiating, he said the hawkish stance, which mirrors global trends, is premised on cooling inflation that inched up marginally by 0.1 per cent to 21.9 per cent in February and protecting the naira’s peg to the US dollar as the Federal Reserve shows no sign of letting up its tightening stance.