The Central Bank of Nigeria (CBN) Monetary Policy Committee has raised the interest rate by 50 basis points from 26.25% to 26.75%.
The Governor of the CBN, Mr. Olayemi Cardoso, announced this at the end of the apex bank’s 296th MPC meeting held in Abuja.
The MPC also pegged the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45%, while that of merchant banks was put at 14%. The liquidity ratio was pegged at 30%.
The apex bank also adjusted the asymmetric corridor around the MPR from +100 to –300 basis points around the MPR to +500 and –100 basis points around the MPR.
Speaking on the reason for the 50-basis point hike, Mr. Yemi Cardoso, Chairman of the Monetary Policy Committee (MPC), noted recent events in the economy, such as inflation and the need to stabilize the foreign exchange market, as a rationale for the increase.
He further referenced recent policies of the federal government to import specific staple foods such as rice, maize, and wheat to help stem the rising food inflation but warned that the timeline should be followed in order not to stifle the gains made in local food production.
Additionally, Mr. Cardoso praised the convergence between the official exchange rate and that of the parallel market as part of efforts to reduce arbitrage in that sector.
What you should know
The 50 basis points increase to the interest rate would be the fourth consecutive increase in interest rates by the Central Bank in 2024 and continue from similar MPR hikes in 2023. Also, the recent hike totals a cumulative 800 basis points hike in MPR since Mr. Olayemi Cardoso took over the reins of the apex bank. This has seen the benchmark interest rate rise from 18.75% to 26.75%.
The apex bank in February increased the MPR by 400 basis points. This was followed by another 200 basis points and then 150 basis points before the latest increase.
While the reason for the hike in interest rates by the CBN seems genuine, members of the public, especially the business community, seem to be negatively affected as the cost of accessing capital has skyrocketed and they have voiced their concerns.
Popular among them is Africa’s richest man, Alhaji Aliko Dangote, who stated that no economic growth would occur, nor would jobs be created, if interest rates from banks stay at 30%.
Additionally, the National Association of Chambers of Commerce, Industries, Mines, and Agriculture (NACCIMA) has noted that the monetary policy tightening by the CBN contributes to inflation rather than reduces it.