The Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR), which serves as the benchmark for interest rates, from 26.75 percent to 27.25 percent.
CBN Governor Olayemi Cardoso announced the 50 basis points increase during a press conference on Tuesday following the MPC’s 297th meeting in Abuja. Cardoso explained that the hike is aimed at curbing inflation.
This decision comes after the National Bureau of Statistics (NBS) reported a decline in Nigeria’s inflation rate to 32.15 percent in August, marking the second reduction in 2024. Despite this, inflation remains a key concern.
In addition to raising the MPR, the MPC retained the asymmetric corridor at +500 and -100 basis points around the MPR. It also increased the Cash Reserve Ratio (CRR) from 45 percent to 50 percent, while maintaining the liquidity ratio at 30 percent.
Cardoso noted that the MPC intends to enhance monitoring of future economic releases to manage their impact on price trends. He also highlighted the relative stability and convergence in the exchange rate across market segments, attributing it to the CBN’s tight monetary policy.
According to Cardoso, these measures are expected to bolster confidence among economic players, enabling better planning for the medium to long term.
“The committee was, however, unanimous in recognising that a lot more is required to actualise the bank’s price stability mandate,” he said.
“The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices.
“The uptrend poses severe concerns to members as it clearly indicates the persistence of inflationary pressures. Members thus reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices.
“The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures.”
Cardoso said the MPC was worried about the fiscal deficits.
However, he said the federal government has pledged not to resort to ways and means for monetary financing.
“Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through ways and means,” he said.
Also, Cardoso applauded the federal government for the effort put into stabilising food prices.
He said the committee expressed optimism that “the lifting of refined petroleum products from Dangote Petroleum Refinery will moderate transportation costs and significantly support the easing of food price pressures in the short to medium term”.
“This is also expected to moderate foreign exchange demand for importation of refined petroleum products, with a positive spillover on external reserve and improvement in the overall balance of payment position,” he said.
Cardoso also applauded the ongoing efforts of the federal government of Nigeria to bridge the supply deficit through a duty-free import window for food commodities.
In addition, the CBN governor said the MPC “noted that the real policy rate remains negative, even after the recent moderation in headline inflation”.
“To attract investments into the economy, efforts must be sustained to achieve a positive real interest rate.” he said.
Cardoso it would enhance the economy’s competitiveness for foreign capital, thereby improving the exchange rate.
