MPC increases MPR to 17.5% in January 2023 from 16.5%

The monetary policy committee of the Central Bank of Nigeria has voted in its January 2023 meeting to raise its benchmark interest rate, otherwise called the monetary policy rate, to 17.5% from 16.5%.

Godwin Emefiele, the apex bank’s governor, announced this at a press briefing following the end of the monetary policy committee meeting held on Tuesday, 24th January 2023.

This is the first interest rate hike in 2023 and it suggests that the apex bank is continuing with the hawkish rate policy started in 2022. Recall that the CBN had raised interest rates by a cumulative 500 basis points last year in a bid to tame the rising inflation rate in the country.

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Hike despite moderating inflation: The decision to further tighten the monetary policy rate was made despite the moderation of the headline inflation rate in December 2022 to 21.34% from 21.47% recorded in the previous month.

According to the CBN governor, a marginal decline in the inflation numbers printed in December is not enough to begin to celebrate, which influenced the decision in favour of raising as opposed to a hold or loosening decision.

Highlights of the Committee’s decision

The MPR was increased by 100 basis points to 17.5%
The asymmetric corridor of +100/-700 basis points around the MPR was retained
CRR was retained at 32.5%
Liquidity Ratio was also kept at 30%

Note that the latest increase in the MPR represents the highest rate in over 21 years, since 2001 when the benchmark interest rate averaged 20.5%. Also, this represents the fifth consecutive increment in the monetary policy rate.

The CBN has also maintained that it would not be extending the deadline for the extinction of the old naira notes from 31st January 2023. Highlighting that the 100i-day window is more than enough to deposit all old naira notes in circulation to the banks.

What this means: The CBN’s aggressive hawkish stance shows its determination to stem high inflation by reducing access to credit and mopping up excess liquidity.

Note that the monetary stance is working in tandem with the new naira note design as well as the reduction in the minimum over-the-counter cash withdrawal.
This also helps to tighten the negative real returns in the fixed-income market, which had deterred foreign investments. With the benchmark interest rate at 17.5% and an inflation rate of 21.34%, it brings the real returns to a deficit of 3.84%.