The Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.25% to 26.75%. This decision, aimed at curbing rising inflation and high food costs, was announced by CBN Governor Cardoso at the apex bank’s 296th Monetary Policy Committee (MPC) meeting in Abuja on Tuesday.
The MPR serves as the benchmark interest rate that the CBN uses to lend to banks, which then lend to consumers at various rates. An increase in the MPR will result in higher loan service rates for consumers, exacerbating the already elevated cost of living.
Adjustments to Asymmetric Corridor
In addition to raising the MPR, the committee adjusted the asymmetric corridor around the MPR from +100/-300 to +500/-100 basis points. However, the Cash Reserve Ratio (CRR) was retained at 45% for deposit money banks and 14% for merchant banks, while the Liquidity Ratio remained at 30%.
Considerations and Future Outlook
Governor Cardoso acknowledged the challenges faced by Nigerians, noting the impact of increased rates on households and businesses. He emphasized the committee’s commitment to controlling inflation, despite the recent uptick in prices in June 2024. The governor expressed optimism that prices would moderate in the near term as monetary policy gains traction and additional fiscal measures are implemented to address food inflation.
The MPC expressed concern over the ongoing issues of food inflation and rising energy costs, which continue to undermine price stability. Regarding the duration of the rate hikes, Governor Cardoso stated:
“That will be as long as we can control and reverse galloping inflation. Once we achieve that, we will maintain the rates. We are all aware that in the Western world, they implemented rate hikes to control inflation and maintained them for a very long time. It is only recently that they have stopped rate hikes, but they have not yet started reducing the rates.
It is important that we tighten and hold on for a little while and in no distant future, we will be able to slow down on the rate hikes.”
Expert Warnings
Despite the CBN’s measures, experts have warned that another rate hike could have disastrous effects on businesses in Nigeria.
