The Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) by 150 basis points from 24.75% to 26.25% following a two-day meeting of its Monetary Policy Committee (MPC).
The decision, which is the third consecutive interest rate hike, comes as inflation levels in Nigeria have surged to 33.69% in April 2024.
CBN Governor and MPC Chairman, Yemi Cardoso, highlighted the key focus of the MPC meeting.
He cited food inflation as a primary driver, attributing it to rising transportation costs, infrastructure challenges, insecurity, and exchange rate issues.
While announcing the interest rate hike, Cardoso noted that the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) would remain at 45%, and the MPC would maintain the Asymmetric Corridor around the MPR at +100 and -300 basis points.
Also, the liquidity ratio would be retained at 30%.
The decision reflects the CBN’s determination to address the economic challenges stemming from high inflation rates.
Despite protests and pressure from labor unions, President Bola Tinubu has urged patience, expressing confidence in his government’s reform initiatives.
The announcement of the interest rate hike comes amid rising prices of commodities and an escalating cost of living for Nigerians.
The removal of fuel subsidies last year and the floating of the naira have contributed significantly to historic high inflation levels.
In recent months, the CBN has taken measures to combat the falling value of the naira, including targeting the operations of cryptocurrency exchange Binance.
While these measures initially led to an appreciation of the currency, recent weeks have seen the gains stall.
The decision to raise the interest rate shows CBN’s commitment to implementing measures aimed at stabilizing the economy and restoring confidence in the nation’s financial system.
However, the effectiveness of these measures in curbing inflation and promoting economic growth remains to be seen amid ongoing economic challenges and uncertainties.