The Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee members on Tuesday unanimously voted to increase the benchmark interest rate (Monetary Policy Rate) by 150 basis points from 14% to 15.5%.
The 15.5% benchmark rate set by the committee, which ostensibly was informed by the apex bank’s sustained measures to tackle the rising inflation in the country, was the highest in the past 20 years.
The Tuesday’s decision of the committee is the third hawkish move by the apex bank this year, having raised the interest rate from 11.5% to 13% in May this year and also increased it to 14% in its last meeting in July.
The Governor of the CBN, Godwin Emefiele, who read the communiqué issued at the end of the MPC’s two-day meeting at a media briefing in Abuja, disclosed that the asymmetric corridor of +100/-700 basis points around the MPR was retained.
According to him, the committee also raised the Cash Reserve Ratio (CRR) to a minimum of 32.5% but kept the Liquidity Ratio at 30%.
Emefiele explained that the committee did not consider the option of reducing or holding rates, but rather how much an increase should be made.
According to the Governor, members deliberated on the impact of the widening margin between the current policy rate of 14% and the inflation rate of 20.52%, after which they were left with the only option of raising interest rates since reducing it will be detrimental in reining on inflation.
He confirmed that the committee members unanimously agreed to raise the policy rate as a step towards narrowing the negative real interest rate and rein in inflation.
Specifically, the governor disclosed that 10 members voted to raise the MPR by 150 basis points, 1 by 100 basis points, and 1 by 50 basis points while 10 members voted to increase the CRR by 500 basis points, while two members voted to increase it by 750 basis points.
As expected, with the benchmark interest rate now raised to 15.5%, the cost of lending and the yield of government fixed securities are expected to rise, as the CBN will continue to use the CRR to mop up liquidity in the financial sector.
Before the MPC’s decision, analysts had in the past few weeks canvassed the need for the apex bank to hike the rate as rising inflation continued to undermine economic activity across the broad spectrum of the economy.