An official statement issued today stated that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has decided to raise the benchmark interest rate by 200 basis points, or 2%.
With the most recent rate increase by the Monetary Policy Committee, the policy rate is now 24.75%, up from 22.75% last month. Remember that the committee raised the benchmark rate by 4% in February as a result of its decision to anchor rising headline inflation.
The CBN declared at the conclusion of the committee meeting that it has reduced the asymmetric corridor from +100 bps/-700 bps to +100 bps/-300 bps. Additionally, the committee decided to keep the cash reserve ratio (CRR) for deposit money banks (DMBs) at 45.0%, but to change it from 10.0% to 14.0% for merchant banks.
As banks adapt to changing market conditions, sustained monetary policy tightening is predicted to raise borrowing costs for all economic actors. The policy meeting ended last month with a 4% increase in the hawkish tempo; however, in March, this tempo decreased. The inflation rate has been a major driver of the interest rate increase that started in 2023.
For the tenth meeting in a row, since May 2022, the committee has raised the interest rate in an effort to counteract growing inflation. The expectation of liquidity injections into the economy from recent policy developments and their potential impact on inflation informed monetary policy decisions about rates.
Consequently, all committee members agreed to retain the parameters at unchanged levels, with the asymmetric corridor around the MPR remaining at +100/-700, while also maintaining the Cash Reserve Ratio (CRR) at 45.00% and the Liquidity Ratio at 30%.
The committee discussed whether to tighten further or stick with the current position, with the goal of letting the effects of the most recent rate hike seep into the economy and monitoring its effects, as CBN Governor Yemi Cardoso pointed out.
Ongoing global and domestic economic uncertainties, elevated general price levels, and the near-term inflation outlook influenced the committee’s choice to raise rates. The committee took into account significant changes in the global economy, such as the monetary policies that global central banks have adopted to reduce inflationary pressures and the patterns of inflation in advanced economies.
On inflation, the committee noted the pressures stemming from exchange rate depreciation and its significant pass-through effects on core components. Additionally, the committee emphasized that addressing concerns regarding food security would be pivotal in curbing inflation levels.
Measures such as providing palliatives to farmers, releasing grains from grain reserves, distributing fertilizers ahead of the planting season, and supplying farming implements to farmers were highlighted as strategies to ensure food security and mitigate rising food inflation, which is a major driver of the headline inflation index.
In February 2024, the National Bureau of Statistics reported that Nigeria’s headline inflation continued its upward trajectory to 31.70% year-on-year from 29.90% in the previous month. This increase was driven by upticks in both food and core inflation.
The headline reading rose 3.12% month over month from 2.64% in January, while the month-over-month increase in food inflation was 3.79% from 3.21% in January.
