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The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has hiked the benchmark interest rate by 200 basis points to 24.75 percent.
This is according to a Tuesday communique by the CBN governor Yemi Cardoso after the second MPC meeting of his tenure in Abuja.
The new interest rate is a jump from the 22.75 percent announced by the MPC about a month ago and the second rate hike by the current committee.
Cardoso announced the retention of the Cash Reserve Ratio (CRR) of deposit money banks at 45 percent. However, the MPC adjusted the CRR of merchant banks from 10 percent to 14 percent.
The committee also retained the liquidity ratio at 30 percent.
The present Monetary Policy Rate (MPR) of 24.75% is unusually high, reflecting the bank’s strong commitment to tackling inflation and exchange rate fluctuations.
While this 200-basis points hike is steep, it still doesn’t surpass the substantial 400 basis points rise implemented by the bank in February.
Addressing journalists at the end of a two-day meeting of the MPC in Abuja, CBN Governor, Mr. Olayemi Cardoso, said the decisions of the committee further underlined the urgency on the part of the apex bank to, “bring inflation under control to ensure that the purchasing power of ordinary Nigerians is restored in the short to medium term.
“The considerations of the committee at this meeting focused on the current inflationary pressures and the need to anchor inflation expectations as well as ensure sustained exchange stability,” the CBN chief said.
The latest round of policy tightening comes as a surprise to many analysts who has predicted that the apex bank would possibly hold the rates at their levels before the meeting and allow the effects of the previous policy adjustments permeate the system.
Cardoso said the moves are part of efforts to combat the country’s rising inflationary rate which was pegged at 31.70 percent in February.
He noted that MPC members believe the headline inflation in the country is triggered mostly by a hike in the cost of food.
He said the committee was faced with the option of either progressing with its tightening cycle or hold, to observe the impact of the previous rate hike and adjustment of CRR.
According to him, after reviewing the balance of risks and the near-term inflation outlook, members were convinced of the need to progress with the tightening cycle.
“The committee therefore was of the view that addressing food insecurity is key to containing the current inflationary pressures,” he said while commending the Federal Government’s efforts at curbing food insecurity including the distribution of palliatives.
