The Central Bank of Nigeria (CBN) has raised the interest rate by 150 basis points from 24.75 per cent to 26.25 per cent.
Following a two-day meeting, the bank’s Monetary Policy Committee (MPC) agreed to increase the Monetary Policy Rate(MPR) for the third straight time to rein in the country’s soaring inflation levels pegged at 33.69% in April 2024.
“The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its 295th meeting on the 20th and 21st of May 2024 to review recent economic and financial developments and assess risks to the outlook,” the CBN Governor Yemi Cardoso who is also the MPC chairman said on Tuesday.
“Decisions of the MPC. The committee’s decisions are as follows: 1. Raise the MPR by 150 basis points to 26. 25 per cent from 24.75 per cent.”
What is MPR?
Monetary policy controls the quantity of money available in an economy and the channels by which new money is supplied.
The CBN monetary policy rate (MPR) is like the price tag the central bank puts on borrowing money. The new MPR of 26.25 per cent means it is now more expensive for businesses to borrow money from banks.
As a boomerang, these businesses to break even are more likely to increase the cost of their products and services thereby affecting the general populace as it may increase the price of goods and services.
In retrospect, this may discourage buyers from purchasing things they do not need and only spend on necessary things thereby reducing the overall money in circulation and invariably inflation.
Cardoso, however, said the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBS) was retained at 45 per cent. The MPC also put the Asymmetric Corridor around the MPR at +100 and –300 basis points. It retained the liquidity ratio at 30 per cent.
The CBN chief who admitted the rising inflation levels in the country said the key focus of the MPC meeting was to achieve price stability by using tools available to rein in inflation.
He said the inflation pressure is being driven largely by food inflation, citing rising costs of transportation, infrastructure challenges, security challenges, and exchange rate issues as among the factors affecting food inflation.
Monday’s announcement comes amid soaring prices of commodities and a rising cost of living.
Pushed majorly by the removal of fuel subsidy last year and the floating of the naira, Nigerians are battling historic inflation levels.
Despite protests and pressures from labour unions, President Bola Tinubu has repeatedly called for patience, expressing optimism that his government’s reforms will yield fruit.
In a bid to combat the falling value of the naira, the CBN in recent months targeted the operations of cryptocurrency exchange Binance.
