In consideration of the galloping global and local inflationary levels, the Monetary Policy Committee of the Central Bank of Nigeria, on Tuesday, raised the benchmark interest rate from 14 to 15.5 per cent.
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This represents a 150-basis-point increase from the 14 per cent rate voted during the last MPC meeting in July.
This is the third time the apex bank would be raising the Monetary Policy Rate, which is the same as the benchmark interest rate, in five months.
The MPC had raised the rate from 11.5 to 13 per cent in May, and further to 14 per cent in July, before increasing it to 15.5 per cent in a latest blow on cash-strapped Nigerian business, especially small and medium enterprises.
At the end of the MPC meeting, CBN Governor, Godwin Emefiele, told journalists that 10 members voted in favour of the rate hike.
The cash reserve ratio (CRR), which means the share of a bank’s total customer deposit kept with the central bank as cash, was also raised to 32.5 percent, from 27.5 percent since July.
Emefiele announced these decisions after the MPC meeting, saying that members were concerned with the continued aggressive movement in inflation, “even after the rate hike at its meeting in May and July 2022, and expressed an unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.”
“We will keep increasing the interest rate to reduce the high effect of inflation,” Emefiele said, noting that “the tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates.”
He explained that the MPC was of the view that with the aggressive policy normalisation of the economies, losing the policy stance could hurt the economy.
What are The Implications Of CBN Rate Hike For Fintech and Crypto Start-ups ?
Experts have described the developments as “a double whammy” for Fintech Start-ups.
One of the experts noted that businesses are already grappling with so many problems, especially because of the high exchange rates, forex scarcity, currency depreciation, cost of diesel, and insecurity.
Cost of operation will go up and inflation will still remain high if not higher. What guarantee does the CBN have that this increase in interest rate will curb inflation?
“Definitely, the CBN has not considered if we have borrowed money from the banks to invest. So, it’s not good news at all that CRR increased to 32.5 percent.
“What it also means is that the increase will further tighten the financial system because 32.5 percent CRR is one of the highest in the world.
“It is going to affect what you call financial intermediation, which is the major function of banks.
“What the CBN should have done is to also reduce its own fiscal deficit financing. That’s an even bigger problem for liquidity. Is it not the CBN that is providing the ways and means it is almost N20 trillion now?
“Things like this have very serious implications for inflation. I think that it is essential that CBN addresses this because it is not within the domain of the commercial banks or the banking systems, but within the remit of the CBN and the fiscal authorities.
“CBN is talking as if it is only CBN tools that can solve the problem of inflation whereas it is just causing unnecessary problems for investors who are indebted to the banks and to those who want to borrow money.”