UPDATE: Why we Raised Interest Rate to 18.75 Percent – CBN
The Central Bank of Nigeria (CBN) has explained why it raised lending rate (MPR) by 25 basis points, from 18.50 percent in May 2023 to 18.75 percent in July as it battles inflationary pressure.
Addressing journalists at the end of the two-day Monetary Policy Committee (MPC) meeting on Tuesday, the apex bank acting governor, Fola Shonubi, said he latest decision was meant to frontally address inflationary pressure that is stifling the economy.
He added that the bank has lined up other innovative tools in addition to routine hikes in benchmark lending rate to deal with liquidity overhang.
Going forward, he hinted of plans to come up with various ways to tighten the liquidity to ease pressure on exchange rate.
This is the first MPC meeting Shonubi is presiding over since he replaced the suspended Godwin Emefiele as CBN governor.
Also Read: CBN Raises Interest Rate to 18.75%
The MPC also approved the upward adjustment of the asymmetric corridor to +100/-300 basis points around the MPR from the previous corridor of +100/-700 basis points.
The Committee retained CRR at 32.5 per cent and Liquidity Ratio at 30 percent; ostensibly to rein in inflation which was put at 22 .79 percent in June.
Asked why CBN’s consistent hikes in lending rate failed to address inflation, he said it did and explained other innovative tools being looked at by the bank in addition to the conventional lending rate hike.
He said: “It has made quite a lot of difference and I believe in previous MPC’s we have indicated and shown that every time we have had a rate increase it has actually moderated the rate of inflation. But that is not all we have been doing, and during this MPC we had quite a lot of time talking about inflation; talking about the various tools and mechanism we could use to manage inflation.
“We agreed that one of the key challenges now was the liquidity overhang. We need to look at the various tools we had. In addition to interest rate hike, we have also come up with various ways to tighten the liquidity because we believe that if the liquidity surface actually runs across not just inflation, but also have some impact on the exchange rate and other parts of the economy. I can confirm that it is not only rate change that we are looking at to moderate inflation, we are looking at every tool in the box that will help us reduce liquidity and that should have a positive impact on reigning in inflation,” he said.
