The Central Bank of Nigeria (CBN) on Tuesday announced an increase in the Monetary Policy Rate (MPR) from 18.5 percent to 18.75 percent. The Acting CBN Governor, Folashodun Shonubi, disclosed this decision at the conclusion of the bank’s Monetary Policy Committee (MPC) meeting held in Abuja.
To provide more context, the MPR is the benchmark interest rate used by the CBN to control inflation and regulate economic activities. This rate has been gradually increased from 11.5 percent in May 2022 to the current 18.75 percent.
In addition to raising the MPR, the MPC also adjusted the asymmetric corridor around the MPR. Previously, the corridor was set at +100 and -700 basis points, but now it stands at +100 and -300 basis points. This means that the CBN is narrowing the range within which banks can operate around the benchmark interest rate.
The decision to increase the interest rate came in the wake of rising inflation, which reached 22.79 percent in June, according to the National Bureau of Statistics (NBS). The CBN aims to tighten the monetary environment to combat inflationary pressures.
Analysts had anticipated that under Shonubi’s leadership, the CBN might take a different approach from the previous tenure of Godwin Emefiele, possibly slowing down the rate increases or maintaining the existing rate. However, the recent increase of 25 basis points suggests a continuation of tightening monetary policies.
As a result of this rate hike, borrowing costs for households and businesses are likely to increase since banks may adjust their interest rates in line with the MPC’s decision.
Despite the MPR increase, the MPC voted to retain the Cash Reserve Ratio (CRR) at 32.5 percent and the Liquidity Ratio at 30 percent. These ratios determine the proportion of deposits that banks must hold in reserves and the proportion of their net demand and time liabilities that they must maintain as liquid assets, respectively.
He said: “In summary, the MPR voted to raise the policy rate by 25 basis points from 18.5 to 18.75 percent.”
