CBN: MPC Has Increased Interest Rate To 26.25%
According Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), it’s Monetary Policy Committee (MPC) has increased the benchmark interest rate by 150 basis points to 26.25% from 24.75%.
He stated this at the press briefing following the 295th MPC meeting of the bank.
Furthermore, the bank retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and put the Asymmetric corridor around the MPR at +100 and –300 basis points. The bank further set the liquidity ratio of banks at 30%.
The Governor of the apex bank attributed the third consecutive hike in bank interest rates in 2024 to continued efforts towards moderating inflation which reached 33.69% in April 2024 according to the National Bureau of Statistics (NBS).
Also, he noted that members of the MPC the significant decline in other inflation such as food and core inflation suggest the positive effects of the apex bank’s hawkish monetary policy stance since the beginning of the year.
“The committees’ decisions are as follows; raise the MPR by 150 basis points to 26.25% from 24.75%. Retain the asymmetric corridor around the MPR to +100 to –300 basis points. Retain the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and retain the liquidity ratio at 30%.”
“The key focus of the MPC at this meeting remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation. Members observed that while year-on-year headline inflation in April 2024 rose moderately, the month-on-month headline food and core inflation declined significantly.”
The Governor during the press briefing agreed with sentiments from members of the public that an increase in food prices is a major driver of inflation in the country and listed the factors responsible for the acceleration in food prices to increase in the transportation of farm produce, infrastructure related constraints, security challenges in food-producing areas and exchange rate pass-through on domestic prices for imported food items.
The third consecutive increase in MPR by the CBN reflects the dissatisfaction of the bank with the current erstwhile interest rate at achieving its objectives of reducing inflation and stabilising the exchange rates.
On the inflation front, there are positive signs of moderation with declines in the rate of increase but that is not the same on the foreign exchange market where the naira has seen renewed volatility and weakness in the month of May following significant gains in April.
Another 150 basis points increase will come as a disappointment to the private sector which has called on the apex bank in the past to cool down on interest rate hikes which increases the cost of accessing capital in the country.
CBN’s MPC, in its February and March meetings, had increased the MPR by a combined 600 basis points. Today’s raise in MPR takes the total rate of increase to 750 basis points in just five months. The bank will hold its next MPC meeting in July 2024.
