CBN Raises Benchmark Interest Rate to 18%
In a bid to continue to fight the rising headline inflation rate, the monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) has increased the monetary policy rate (MPR) or benchmark interest rate to 18%.
The two days meeting which ended today discussed key macroeconomic issues in Nigeria, including rising inflation rate, worsening local currency and banking sector’s activities.
The latest interest rate hike came sixth after the monetary policy tightening that started in May 2022. The rate surge is In line with Afrinvest expectations. Monetary Policy: Afrinvest Anticipates 50bps Interest Rate Hike
The monetary policy committee voted to raise the benchmark interest further by 50 basis points to 18.0%. The committee however retains the asymmetric corridor of +100/-700bps around the MPR.
Key metrics used to control the banking sector were retained at the meeting. Specifically, MPC retains the cash reserve ratio (CRR) at 32.5%; and keeps the Liquidity Ratio at 30.0%.
The raise in the MPR may affect cost of borrowing and equities prices, analysts said.
In addition, the planned removal of subsidies by the incoming administration is another reason for the MPR hike.
Subsidy removal is expected to lead to a reduction in the country’s inflation rate, analysts said.
However, this will be done in a gradual manner, taking into account the current impact of interest rate increases in certain developed countries.
