The Central Bank of Nigeria (CBN) on Wednesday raised interest rate from 18 percent to 18.5 percent.
It was learnt that Mr. Godwin Emefiele, the CBN Governor announced the decision on the Monetary Policy Committee after the committee’s meeting at the CBN headquarters in Abuja.
The development is the third consecutive time the apex bank will be raising the monetary policy rate (MPR) which measures the interest rate.
According to a communiqué issued by the CBN Wednesday night, members of the MPC ‘resolved by a majority vote to raise the Monetary Policy Rate (MPR) by 50 basis points.
In Summary, ten (10) members voted to raise the MPR by 50 basis points, one (1) member voted to raise the MPR by 25 basis points
and one (1) member voted to hold the MPR. All members voted to keep all other parameters constant.
The MPC, therefore, voted to: Raise the MPR by 50 basis points to 18.0 per cent; Retain the asymmetric corridor of +100/-700 basis points around the MPR; Retain the CRR at 32.5 per cent; and IV. Retain the Liquidity Ratio at 30
per cent.
Emefiele noted that the Commitiee’s considerations focused its attention not only on the inflationary trends in most major economies, but also on the reported impact of policy rate hikes aimed at reining in inflation on financial system stability in the global financial system.
He said the MPC took time out to discuss the recent bank failures in the US and Switzerland, an event that occurred following the persistent interest rate hikes in the US, and how this has adversely impacted the broad portfolio of banks in the US.
“It noted that whereas MPR was increased by 500 basis points in Nigeria, from 12.5 per cent in 2022 to 17.5 per cent in January 2023, the Financial Soundness Indicators (FSIs) in Nigeria shows that the Nigerian banking system remain resilient due largely the stringent prudential guidelines put in place by the CBN which has resulted in a strong build up of not only the Cash Reserve Ratio (CRR) in Nigeria, but also the Liquidity Ratio and capital Adequacy Ratio.
“In the light of these strong FSIs, MPC was comforted that its various decisions in increasing MPR have had moderate impact on inflation, given that the rate appeais to have plateaued in Nigeria.
“The Committee’s major considerations at this meeting, therefore, focused on arriving at key policy mechanisms to shield the economy from emerging shocks from the global economy, as well as sustain its focus on domestic price stability.
“Headline inflation, in the view of members, remained high with increased expectations of price development, due to the perennial scarcity of PMS and ongoing discourse around the removal of fuel subsidy. With the prices of other energy products also rising, members stressed the importance of addressing price development.
Justifying the rising inflation rate, the MPC blamed the high energy cost and challenges around the supply chain, among others, which are beyond the reach of the CBN.
He added, “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”
Analysts in the country had predicted the CBN and the MPC might raise the lending rates at the end of the Monetary Policy Committee.
The apex bank had increased the MPR from 11.5 per cent earlier last year to 18 per cent in March this year across six consecutive rate hikes.
Recall in March that the MPC of the bank voted to increase the benchmark interest rate by 50 basis points to 18 per cent.
The CBN Boss also noted that the overall outlook for the full recovery of both the global and domestic economies, remained clouded by new and legacy downside risks.
Available data and forecasts for key macroeconomic variables for the Nigerian economy, suggest that the domestic economy will continue to recover for the rest of 2023 at a moderate pace, in light of evolving and persisting shocks to the economy. The continued upward pressure on inflation, rising cost of debt and debt servicing, as well as deteriorating fiscal balances remain headwinds, which may undermine the smooth path to a faster recovery. Accordingly, the Nigerian economy is forecast to grow in 2023 by 3.03 per cent (CBN), 3.37 per cent (FGN) and 3.20 per cent (IMF).
