The Central Bank of Nigeria (CBN) has hiked its monetary policy rate by 150 basis points to 15.5%, to combat rising inflation.
This was disclosed by Godwin Emefiele, the Central Bank Governor, in the 287th meeting of the monetary policy meeting held on the 26th and 27th of September 2022, at the CBN’s head office in Abuja.
At the meeting, the committee noted the continued uptrend in inflation and resolved to the third hawkish interest rate hike this year 2022. Additionally, the bank’s governor expressed that the move is in sync with that of many other central banks as they try to tame the unabating inflation.
The MPC of the Central Bank had previously raised the interest rate from 11.5 percent to 14 percent in the last two meetings. From the second quarter of 2022 till now, the CBN has raised monetary policy rates by 400 basis points (bps).
According to the CBN, the ongoing monetary policy tightening by the US fed is putting pressure on the naira with pass-through to domestic prices.
The MPC’s deliberation
The Governor noted that the committee unanimously agreed that holding or loosening monetary policy was not an option as a result of the sharp upward movement of inflation globally. He further stressed how inflation has begun to retard the growth of the economy.
The MPC was of the view that given its price and monetary stability mandate, its focus must be to tame inflation considering that within four months it had accelerated aggressively by 280bps (from 17.7 in May 2022 to 20.5 percent in August 2022).
Loosening monetary policy will further widen the negative real interest rate gap and worsen the financial market conditions as savings mobilization and inflows would decline further.
Summary of the committee’s decision
MPR raised by 150 basis points from 14% to 15.5%.
The asymmetric corridor of +100/-700 basis points around the MPR was retained.
CRR was raised to a minimum of 32.5%.
The liquidity Ratio was also kept at 30%
The CBN emphasized that given the aggressive policy normalization in developed economies, loosening the stance of monetary policy will lead to a sharp depreciation of exchange rates and result in further capital outflows.
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