The CBN monetary policy committee has decided to raise its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 50 basis points to 18.5%. This marks the third time this year that the CBN has increased the interest rate, reflecting the bank’s efforts to curb rising inflation in the Nigerian economy. Governor Godwin Emefiele made this announcement during a post-MPC press briefing on Wednesday, May 24th, 2023.
The decision to raise interest rates comes in light of the persistently high inflation rate in the country. Headline inflation reached 22.22% in April 2023, surpassing the previous month’s figure of 22.04% and reaching its highest level since September 2005. The CBN’s move to set the interest rate at 18.5% represents the highest level in 22 years.
During the briefing, Governor Emefiele stated that the decision to increase the MPR was a unanimous one, with 10 out of the 11 members of the Monetary Policy Committee voting for a 50 basis point hike, while one member voted for a 25 basis point increase. The committee dismissed the possibility of reducing the MPR and emphasized that maintaining the current rate would contradict the evidence on the ground. They also cited evidence indicating that raising interest rates has had a dampening effect on inflation, which might have surged to as high as 32% if rates had not been raised aggressively in April.
The key highlights of the committee’s decision include a 50 basis point increase in the MPR to 18.5%, the retention of the asymmetric corridor of +100/-700 basis points around the MPR, and the maintenance of the Cash Reserve Ratio (CRR) at 32.5%. Additionally, the Liquidity Ratio was kept unchanged at 30%.
This decision holds significant importance for Nigeria, as the country has been grappling with high inflation and a depreciating exchange rate in both the parallel and official markets. In April 2022, headline inflation reached its highest level in over 17 years, eroding the purchasing power of citizens. The CBN has been employing various monetary policy measures to rein in inflation, with increasing interest rates being one of the tools at its disposal. RateCaptain had previously predicted a rate hike of 25-50 basis points, highlighting the need for the central bank to slow down the rapid pace of inflation.
With the latest decision to raise interest rates to 18.5%, the CBN aims to tackle inflation head-on and stabilize the economy. The move is expected to have both short-term and long-term implications for businesses, consumers, and the overall economic landscape of Nigeria.