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CBN increases baseline lending rate to 18.5%

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) to 18.5 per cent from 18 per cent.

The CBN Governor, Mr Godwin Emefiele, made this known on Wednesday in Abuja, after presenting the communique from the 291st meeting of the MPC.

The MPR is the baseline interest rate in an economy, on which every other interest rate used within an economy is built.

The committee had raised the MPR from 17.5 per cent to 18 per cent at its last meeting in March.

According to Emefiele, the 11 MPC members at the meeting were faced with the dilemma of whether to hold or to hike the policy rates to offset the moderate increase in headline inflation.

“Considering the option of a hold-policy, the committee reiterated the empirical counterfactual evidence and believe that the rate hikes have indeed helped moderate continued rising inflation.

“In addition, the evidence revealed that the rate hikes also helped moderate growth in new credit and reduced a pent-up aggregate demand, which had continued to heighten inflationary pressure.

“Members were unanimous in their conclusion that the current policy stance is, indeed, impacting targeted parameters and yielding the expected outcome, albeit, somewhat slowly, ” he said.

Emefiele said that the MPC members were also convinced that the current uptrend in inflationary pressure was driven by a combination of both demand and supply side issues.

“The MPC observed the continued risk to price development driven primarily by expectation of rising energy and food prices, unabating security challenges in food producing areas, as well as persisting exchange rate pressure.

“The committee, thus, felt it expedient to continue to address the demand side issues falling within the ambit of its policy tools,” he said.

According to him, the balance of argument thus leaned significantly in favour of a further hike, albeit less aggressively, considering the adverse impact of rising inflation on real income.

“The MPC considered that the current policy stance is moderating the rising inflation, and sustaining the stance would consolidate the gains made so far,” he said.

The CBN governor said that tightening would also support efforts toward moderating the demand-pool inflation as cost of funds increased.

“Members, therefore, resolved by unanimous decision to raise the MPR moderately.

“10 members voted to raise the MPR by 50 basis points and one member, by 25 basis. All members voted to hold all other parameters constant.

“Members voted to raise MPR to 18.5 per cent; to retain the Assymetric Corridor of +100/-700 basis points around the MPR, retain the Cash Reserve Ratio (CRR) of 32.5 per cent and retain the Liquidity Ratio of 30 per cent,” he said.

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