The Central Bank of Nigeria has raised its benchmark interest rate five times since May 2022. The bank had retained its 11.5 percent interest rate for six years before the consecutive increases that happened from May 2022 to January 2023.
During this period, the Monetary Policy Rate was raised from 11.5 percent benchmark to 13 percent. This benchmark was further raised to 14 percent in July 2022.
The Central Bank of Nigeria, on Tuesday, September 2022, raised its interest rate also known as MPR to 15.5%, then to 16.5 percent in November 2022. The fifth straight hike in less than a year was 17.5% which was announced by the CBN on January 24, 2023.
According to the Central Bank of Nigeria, the interest hike was the decision made following the continuously increasing rate of inflation in the country which is the highest in 17 years. The inflation rate moved to 20.52 percent in August 2022 from 19.64 which it was in July.
Inflation according to economics is the increase in the prices of goods and services making the units that can be bought at a particular price smaller.
The central bank has adopted this interest hike because it is a proven monetary policy theory, and the easiest way to tame inflation. This was according to Godwin Emefiele, governor of the Apex bank.
The increase in the MPR will reduce the money in circulation.
The implication of this hike on the citizens of Nigeria is that manufacturers will increase their selling prices affecting the purchasing power of an average citizen. Also, the cost of borrowing will increase discouraging businesses from scaling which may affect the economy. Goods and services will inevitably become more expensive, and the burden is pushed onto consumers.
In addition, the average income earners may not be able to afford any form of luxury. They will only be able to meet their basic needs. The poor get poorer.
Furthermore, the increase in interest rate may result in the unwillingness of people to borrow. So, people will save more during this period.