The Central Bank of Nigeria’s Monetary Policy Committee has announced a significant increase in the benchmark interest rate, raising it by 400 basis points to a historic 22.75%.
This decision was disclosed by CBN Governor Olayemi Cardoso during the reading of the communiqué following the committee’s first meeting of the year, held in Abuja.
Policy Adjustments
In addition to the interest rate hike, the MPC also made adjustments to other key policy parameters:
- Asymmetric Corridor: The committee widened the asymmetric corridor around the Monetary Policy Rate (MPR) to +100 to -700 basis points, compared to the previous range of plus 100 to -300 basis points.
- Cash Reserve Ratio (CRR): The cash reserve ratio was raised from 32.5% to 45%.
- Liquidity Ratio: The liquidity ratio was retained at 30%.
Unanimous Decision
All 12 members of the committee unanimously agreed to tighten monetary policy further, reflecting the severity of the economic situation and the need for decisive action. This marks a significant shift from the previous MPC meeting held in July 2023, where the MPR was increased by 25 basis points.
Analysts’ Expectations
The decision to raise the interest rate came as a surprise to many analysts, surpassing their projections. A Reuters poll had suggested expectations of two aggressive interest rate hikes within a short period to combat inflation and stabilize the naira. Despite the currency’s challenges, the policy rate exceeded forecasts, indicating the urgency felt by the MPC to address economic pressures.
Presidential Perspective
President Bola Ahmed Tinubu had previously advocated for lower interest rates to stimulate investment and consumer spending, emphasizing the importance of sustaining economic growth. However, the MPC’s decision reflects a different approach, prioritizing inflation control and currency stability in the face of economic uncertainties.
