Why we Further Tightened Monetary Policy – Cardoso
The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has revealed the reasons behind the bank’s decision to further tighten monetary policy, including raising the interest rate to 27.25%.
Briefing journalists at the end of the 297th Monetary Policy Committee (MPC) meeting in Abuja, Cardoso explained that despite the moderation in headline inflation year-on-year in July and August 2024, core inflation remains elevated due to rising energy prices, which posed severe concerns and indicating persistent inflationary pressures.
Economic Confidential had reported that the apex bank raised the Monetary Policy Rate (MPR) by 50 basis points from 26.75% to 27.25%, retained the asymmetric corridor around the MPR at +500/-100 basis points, and increased the Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) by 500 basis points to 50% and Merchant Banks by 200 basis points to 16%.
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The Bank also retained the liquidity ratio at 30% to combat inflation and stabilise the economy.
Cardoso explained that the MPC aims to sustain the downward trend in price development, which contains emerging risks to inflation, stabilise the exchange rate, and safeguard the banking system.
While shielding the recovery of output growth, he added that achieving a positive real interest rate is crucial to attract investments and enhance the economy’s competitiveness, given the current negative real policy rates.
Cardoso emphasised the need to further tighten policy due to key developments in domestic and global economies.
Citing National Bureau of Statistics (NBS) figures, he said: “Nigeria’s inflation rate dropped to 32.15% in August 2024, with food inflation easing to 37.52% and core inflation rising marginally to 27.58%. Real GDP grew by 3.19% in the second quarter of 2024, driven by both oil and non-oil sectors, with a forecasted 3.32% growth in 2024.”
Cardoso, however, acknowledged the need for close collaboration with the fiscal authorities to address upward pressure on energy prices and curb excess liquidity.
