Business a.m
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria has raised the benchmark interest rate by 200 basis points to a record high 24.75 per cent, in what is considered one of its most aggressive actions to tame inflation which has been spiraling out of control in recent months.
Olayemi Cardoso, the CBN governor and MPC Chairman, announced the MPC’s decision to raise the benchmark interest rate at the conclusion of the 294th Monetary Policy Committee (MPC) meeting held in Abuja.
Cardoso,however, stated that all other monetary policy indicators remain unchanged, even as the benchmark interest rate was increased to rein in inflation.
At the MPC press conference, Cardoso explained that in addition to raising the benchmark interest rate, the CBN has also made some changes to the Cash Reserve Ratio (CRR), which is the amount of cash that banks are required to keep in reserve. The CRR for commercial banks will remain at 45 per cent, while the CRR for merchant banks has been increased from 10 per cent to 14 per cent.
According to Cardoso, the CBN will maintain the liquidity ratio at 13 per cent, which means that banks will need to hold 13 per cent of their deposits in liquid assets. He explained that the reason for this is that the CBN wants to strike a balance between maintaining the liquidity needed to stimulate economic activity and reducing the inflationary pressure caused by excess money in circulation.
Cardoso reiterated the MPC’s dedication to tackling inflation and protecting the purchasing power of Nigerians, highlighting the policy adjustments that have been made. The most significant change was the substantial increase in the MPR to 24.75 per cent, which is intended to curb spending and slow economic growth, ultimately bringing down inflation which has been on an upward trend for years and reached 31.70% in February.
The MPC is an advisory committee to the CBN, and its meetings are held regularly to discuss and make recommendations on monetary policy.
