The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday raised the Monetary Policy Rate (MPR), the benchmark interest rate, by 25 basis points to 18.75% from the previous 18.5%, representing the highest interest rate in 22 years.
The acting CBN Governor, Mr. Folashodun Shonubi, who announced the latest hike in the MPR at a media briefing after the two-day MPC’s meeting in Abuja, exlpained that the committee slashed the asymmetric corridor to +100/-300 basis points around the MPR from +100/-700 basis points and retained CRR at 32.5% and the liquidity Ratio was also kept at 30%
According to the seasoned banker, the decision by the committee to further hike interest rates was informed by the surging inflation in the country, despite the hiking of the MPR in the past 14 months by the apex bank.
The latest CPI report by the National Bureau of Statistics (NBS) reflected that Nigeria’s headline inflation surged to 22.79% in June 2023, which is the highest rate since September 2005.
Shonubi, in his first media briefing after his appointment as the Acting CBN Governor last month expressed optimism that the MPR hike would help narrow the negative real rate of returns as well as encourage foreign investments.
In spite of the hawkish monetary policy stance of the CBN over the months, available data reflected that Nigeria’s money supply increased by N8.8 trillion in June 2023 to N64.3 trillion from N55.5 trillion recorded in May, reflecting the highest level over the past years.
Specifically, currency in circulation in the month under review rose to N2.6 trillion from N2.5 trillion in the previous month just as currency outside banks’ vault increased to N2.26 trillion from N2.18 trillion as of the prior month.
In addition, credit to the government also grew to N31.2 trillion from N30.7 trillion in May, while credit to the private sector surged to N52.8 trillion in June, up from N44.8 trillion recorded in May 2023.
Economic analysts have noted that the sustained increase in money liquidity and inflationary pressure in the economy despite the hawkish policy stance of the apex bank, has clearly shown that raising interest rates alone is not adequate to tighten liquidity and moderate the inflation rate.
