The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR), which serves as the benchmark for interest rates, from 26.75% to 27.25%. CBN Governor Olayemi Cardoso announced the 50 basis points increase at a press conference on Tuesday, following the committee’s 297th meeting in Abuja.
Cardoso explained that the hike in interest rates is aimed at controlling inflation, which has been a persistent concern. The decision comes after the National Bureau of Statistics (NBS) reported a slight decline in Nigeria’s inflation rate to 32.15% in August 2024.
In addition to raising the MPR, the MPC retained the asymmetric corridor at +500 and -100 basis points around the MPR. The committee also increased the Cash Reserve Ratio (CRR) from 45% to 50%, while maintaining the liquidity ratio at 30%.
“The committee was unanimous in recognizing that a lot more is required to actualize the bank’s price stability mandate,” Cardoso stated.
Despite some moderation in food inflation, he noted that core inflation, driven by rising energy costs, remains a significant issue.
“The uptrend poses severe concerns to members as it clearly indicates the persistence of inflationary pressures,” he added.
The MPC emphasized the need for closer collaboration with fiscal authorities to address the rising energy prices and their impact on inflation.
The committee also acknowledged the relative stability in Nigeria’s exchange rate across different market segments, attributing it to the CBN’s tight monetary policy.
Cardoso expressed optimism that this stability would boost confidence and enable long-term economic planning.
The CBN governor also highlighted the federal government’s commitment to curbing fiscal deficits without resorting to monetary financing, stating, “Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through ways and means.”
Cardoso praised government efforts to stabilize food prices and reduce transportation costs through initiatives like lifting refined petroleum products from the Dangote Refinery.
“This is expected to moderate foreign exchange demand for refined petroleum products, positively affecting external reserves and the balance of payments position,” he said.
The MPC also noted the ongoing efforts to bridge the supply deficit in food commodities through a duty-free import window, which is expected to ease food price pressures.
To attract more investment into Nigeria, the CBN governor emphasized the importance of achieving a positive real interest rate, noting, “Efforts must be sustained to achieve a positive real interest rate, which would enhance the economy’s competitiveness for foreign capital and improve the exchange rate.”