The Monetary Policy Rate (MPR), the benchmark interest rate set by the Central Bank of Nigeria (CBN), was increased to 15.5 percent on Tuesday, marking the third straight increase this year.
The Monetary Policy Committee (MPC) met in Abuja for two days, during which time the CBN increased the cash reserve ratio (CRR) from 27.5 percent to 32.5 percent. The CRR is the portion of a bank’s total client deposits that must be held in liquid cash with the central bank.
This took into account the shaky growth and ongoing increase in the inflation rate. In August 2022, headline inflation in Nigeria increased from 19.64 percent to 20.52 percent, the highest amount in 17 years.
In order to control inflation, the CBN recently raised the MPR by a total of 250 basis points. The CBN increased its benchmark interest rate by 150 basis points to 13% during its meeting in May 2022, the first increase in six years. It increased it by another 100 basis points to 14 percent in July.
Following the meeting, all MPC members agreed to keep the other requirements. As a result, the CBN kept the MPR’s Asymmetric Corridor of +100/-700 basis points and its 30% Liquidity Ratio.
Announcing the decision after the meeting, CBN Governor Godwin said, “The MPC noted with concern the continued aggressive movement in inflation, even after the rate hike at its meeting in May and July 2022, and expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.”
The expectation is that the three straight increases in interest rates will encourage foreign investment and relieve pressure on the naira.
