The CBN’s Monetary Policy Committee (MPC) has increased the benchmark interest rate by 200 basis points from 22.75% to 24.75%.
This was disclosed by the Governor of the CBN who doubles as the Chairman of the MPC at the end of the 294th MPC meeting held in Abuja.
Furthermore, the `apex bank retained the Cash Reserve Ratio (CRR) at 45%- unchanged from its last meeting but increased the CRR of merchant banks from 10% to 14% while retaining the liquidity ratio at 30%
The present Monetary Policy Rate (MPR) of 24.75% is unusually high, reflecting the bank’s strong commitment to tackling inflation and exchange rate fluctuations.
While this 200-basis points hike is steep, it still doesn’t surpass the substantial 400 basis points rise implemented by the bank in February.
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Effect of MPR hike on the FX rate and inflation
Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), also made remarks on the impact of the decisions taken during the February Monetary Policy Committee (MPC) meeting on the country’s economy, focusing on inflation and the exchange rate.
Since the CBN’s February MPC meeting, there has been a notable appreciation and stabilization in the exchange rate between the US dollar and the naira. During the interval between the last MPC meeting and the present, the exchange rate momentarily peaked at N1800/$ in the parallel market but has since settled around 1400/$.
Conversely, the inflation rate during this period has not shown the same stability. In February, Nigeria’s headline inflation surged to 31.7%, primarily driven by escalating food prices, with food inflation climbing to 35.92%. This marks an ascent of 1.80% from the 29.90% inflation rate recorded before the February MPC gathering.
The next meeting of the Monetary Policy Committee (MPC) by the apex bank is scheduled for May 2024.
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