Business a.m
The Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR) for the ninth time in a row since May 2022, increasing it by 400 basis points to a record high of 22.75 per cent.Â
In addition to the MPR hike, the CBN also raised the Cash Reserve Ratio (CRR) – the portion of bank deposits banks are required to hold in cash or deposits with the central bank – to 45 per cent, while the asymmetric corridor was raised to +200/-700.
The MPR hike was announced by Yemi Cardoso, who chaired the Monetary Policy Committee (MPC) meeting for the first time.The MPR hike marks the second time that the rate has been raised since President Bola Tinubu’s administration took office in 2023.
It’s worth noting that this is the highest MPR level in Nigeria’s history, surpassing the previous high of 18.75 per cent reached in July 2023. The 400 basis points increase is also the largest since the CBN began using the MPR as a monetary policy tool in 2006.
The monetary policy rate (MPR) is the main interest rate used by central banks to control the money supply and influence economic activity. It is the interest rate at which commercial banks borrow money from the central bank.
By raising the MPR, the CBN aims to reduce the amount of money in circulation and curb inflationary pressures. This is expected to help restore investor confidence in the Nigerian economy, which has been negatively impacted by high inflation and a weakening naira.Â
In explaining the decision to raise the MPR, Cardoso pointed out that the inflation rate in Nigeria rose to 29.9 per cent in January 2024, from 28.92 per cent in December 2023. This increase was attributed to a number of factors, including rising energy costs, a widening fiscal deficit, and insecurity. The MPC chair cited concerns about inflation becoming more persistent in the medium term if not addressed. He noted that the MPC considered various policy scenarios, including holding or hiking the MPR, and ultimately decided that a hike was necessary to ensure price stability.
