In a bid to tackle the persistent rise in inflation, the Central Bank of Nigeria (CBN) announced a significant increase in the benchmark interest rate during its Monetary Policy Committee (MPC) meeting on Tuesday.
The new Monetary Policy Rate (MPR) was adjusted to 24.75%, marking a notable uptick from the previous rate of 22.75%. CBN Governor Yemi Cardoso, addressing journalists after the meeting, underscored the committee’s unwavering commitment to reining in inflation and bolstering the purchasing power of Nigerians.
Key policy adjustments include:
- MPR Increase: The substantial hike in the MPR aims to make borrowing more expensive, thereby curbing spending and slowing economic growth to mitigate inflationary pressures.
- Cash Reserve Ratio (CRR) Adjustments: While maintaining the CRR for commercial banks at 45%, the CBN increased the CRR for merchant banks from 10% to 14%. These measures aim to tighten control over the money supply, reducing liquidity in the financial system.
- Unchanged Liquidity Ratio: The liquidity ratio remains steady at 13%, further contributing to the tightening of monetary conditions.
Cardoso emphasized the pivotal role of food security in combating inflation, urging the federal government to intensify efforts in implementing agricultural programs aimed at boosting domestic food production and reducing dependence on imported food items, which are susceptible to price fluctuations.
The ripple effects of the increased interest rates will be felt across the Nigerian economy. Borrowers, including businesses and individuals, are expected to face higher borrowing costs, potentially impacting investment and consumer spending.
However, the CBN’s decisive actions are geared towards achieving long-term benefits for Nigerians by stabilizing prices and safeguarding purchasing power.
The MPC’s aggressive stance in raising interest rates underscores the severity of Nigeria’s inflation challenge. The effectiveness of these measures will hinge on various factors, including the government’s success in enhancing food production and the economy’s response to tighter monetary policy.
