To tame rising inflation, the Central Bank of Nigeria’s policy-setting committee has raised the monetary policy rate to 15.5 per cent from 14 per cent.
According to The Cable, the MPR which measures interest rate was increased again on Tuesday after two consecutive increments in 2022.
The monetary policy rate is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.
CBN Governor, Godwin Emefiele during an address to journalists after the meeting at the CBN headquarters in Abuja said 10 members of the committee voted for the MPR raise.
The cash reserve ratio which is the share of a bank’s total customer deposit that must be kept with the CBN in form of liquid cash was also raised by the committee from 32.5 per cent to 27.5 per cent
He said the aggressive rate hike would shape the country’s economic growth.
According to him, the committee voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR and liquidity ratio to a minimum of 32.5 per cent.
“It was of the view that with the aggressive policy normalisation of the economies, losing the stance of policy will result in a sharp decrease of exchange rate leading to further hikes that will be afloat,” he said.
“Als, it will help consolidate the impact of the last two policy rate hikes which is already reflected in the slowing growth rate of oil supply in the economy. We also understand that an aggressive rate hike will slow capital outflows and likely attract capital inflows and appreciate naira.
“We will keep increasing the interest rate to reduce the high effect of inflation.”
In August, Nigeria’s annual inflation rate climbed to a 17-year high of 20.52 per cent as the high cost of food items continues to affect citizens.
Emefiele said as inflation continues to reign upward, the MPC will always hike rates to tame the pressure on citizens.
“The tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates,” he added.
“CBN research study has shown that once inflation trends above 12.5 or 13 per cent, it will retard growth. So it is difficult for us, with all data available, not to go in a very aggressive way. To some, not expected because it increases the cost of borrowing, but this is the best we can.”