CBN hikes MPR for fourth time in a row amid soaring inflation

The Central Bank of Nigeria (CBN) on Tuesday raised the benchmark interest rate, or Monetary Policy Rate (MPR), for the fourth time in a row in a continued attempt to tame the country’s rising inflation rate.

This comes after previous increases in the MPR have failed to rein in the soaring inflation.

At the end of its last meeting of the year, the CBN’s Monetary Policy Committee (MPC) voted to increase the benchmark interest rate (MPR) by 100 basis points to 16.5 percent, making a combined increase of 500 basis points in the last seven months.

The MPC had raised the MPR by 150 basis points in May, from 11.5 percent to 13 percent, before further increasing it by another 100 basis points to 14 percent in July. In September, the MPC also raised the rate by 150 basis points to 15.5 percent.

But despite the rate hikes, inflation has remained on an upward trajectory. Nigeria’s headline rose to 15.70 percent in February 2022 from 15.60 percent in January. It then rose to 15.92 percent in March, 16.82 percent in April, and 17.71 percent in May, forcing the CBN to raise the MPR for the first time in six years. Yet, inflation rose to 18.60 percent in June, 19.64 percent in July, 20.52 percent in August, 20.77 percent in September, and 21.09 percent in October 2022, the highest level in 17 years,  according to data from the National Bureau of Statistics.

On Tuesday, the CBN said it retained the Asymmetric Corridor of +100/-700 basis points around the MPR; the CRR at 32.5 percent; and the Liquidity Ratio at 30 percent.

Announcing the decision at the end of the meeting, Godwin Emefiele, governor of the CBN, said the MPC was concerned about “the continued aggressive movement in inflation, even after the three consecutive rate hikes at its previous meetings”. He expressed the bank’s unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.

Analysts say the new rate hike did not come as a surprise. Ahead of the MPC decision, some of the analysts had said they expected a further hike.

After the MPC meeting in September, Emefiele had pointed to a continued rate hike to tame inflation.

“We will keep increasing the interest rate to reduce the high effect of inflation,” Emefiele had said, noting that “the tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates”.