US Central Bank Raises Interest Rates by 25 Basis Points Despite Bank Crisis

The Federal Reserve on Wednesday raised interest rates by 25 basis points to a range of 4.75% to 5% in the United States despite the recent collapse witnessed in the banking sector.

Two notable banks, Silicon Valley Bank and Signature Bank collapsed this month as high-interest rates and other economic challenges created by growing uncertainty in the sector forced them out of business.

At the Federal Open Market Committee (FOMC) meeting held on Wednesday, Federal Reserve Chair Jerome Powell explained that the nation’s financial conditions seem to have tightened more than benchmark indexes are showing.

“The traditional indexes are focused a lot on rates and equities, and they don’t necessarily capture lending conditions,” Powell said when asked what financial situation would warrant an interest rate cut, especially if credit conditions were to further tighten.

If tighter lending conditions are sustained, Powell acknowledged that could easily have a significant macroeconomic impact which would be factored into the Fed’s policy decisions.

“The question for us though is how significant will that be and what would be the extent of it and what would be the duration of it,” he said, adding that “rate cuts are not in our base case.”

In Nigeria, the story is not different as the Central Bank of Nigeria (CBN) led monetary policy committee raised the benchmark interest rate by 50 basis points to 18% despite the plunge in economic activities, increase in the unemployment rate and the drop in earnings across the board.

According to the CBN, the decision was based on the nation’s rising inflation rate, economic uncertainty and challenges of increasing capital importation to the economy.

Also, the expected removal of fuel subsidy was one of the reasons given for the increase. The apex explained the increase in pump price by about 100% would further bolster the already heightened inflation rate if not checked.