The Monetary Policy Committee of the Central Bank of Nigeria voted Tuesday to increase the benchmark interest rate by 100 basis points to 16.5 per cent, the highest since 2001.
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The CBN Governor, Godwin Emefiele, disclosed this while reading the communique of the last MPC meeting of the year on Tuesday, November 22, 2022.
The MPC said the tightening would curb a higher rate of inflation and restore investors’ confidence.
Last week, Nigeria’s inflation rate reached a five-year high at 21.09 percent amid soaring food prices.
The monetary policy rate (MPR) is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.
Addressing journalists on Tuesday after the committee’s meeting at the CBN headquarters in Abuja, Godwin Emefiele, governor of the apex bank, said the hike in interest rate would continue to help tame rising inflation.
The committee also retained the cash reserve ratio (CRR) at 32.5 percent and retained the liquidity ratio at 30 percent
CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash.
According to Emefiele, at this time of high inflation, loosening it “would greatly jeopardise the gains of previous policy rate hikes”.
He said due to all the causative factors such as Russia, Ukraine war, supply chain disruptions, the slowdown in China, rising inflation in advanced economies, and other headwinds, it became dominant that a losing option was not desirable at this meeting.
“With a rise in inflation, loosening the stance of policy will lead to a more aggressive rise in inflation and will erode that gain already achieved through tightening as regards whether to hold MPC was of the view that they won’t stand at the period close to December festive and expected heavy spending during 2023 general election,” Emefiele said.
“MPC decided to continue to tighten, but at a somewhat more moderated rate, noting that tightening the stance of policy would narrow the negative real effective interest rate margin and force improve market sentiment and further restore investors confidence.”
Emefiele further said the continuous tightening has yielded many results.