Home Economy CBN votes to raise monetary policy rate to 18.5%, highest in 22 years

CBN votes to raise monetary policy rate to 18.5%, highest in 22 years

by Business News Report

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria has raised its benchmark monetary policy (MPR) for the third time this year by 50 basis points to 18.5% in its recently concluded MPC meeting. This is contained in the governor of the CBN, Godwin Emefiele post-MPC press briefing held on Wednesday 24th, 2023. This latest increase marks the 7th consecutive rate hike by the apex bank in its fight against Nigeria’s galloping inflation. The governor of the Central Bank of Nigeria said this at the 226th Monetary Policy Committee meeting in Abuja. The decision of the CBN is made on the back of the rising inflation rate in the Nigerian economy. Headline inflation rose to 22.22% in April 2023 from 22.04% recorded in the previous month, representing its highest level since September 2005.

CBN’s interest rate at 18.5% represents its highest level in 22 years. The central bank Governor said that the committee has unanimously voted to hike its monetary policy rates which is a barometer for interest rates by 50 basis points, as 10 members voted for a 50 basis point hike and 1 member 25 basis points. The CBN said reducing MPR was not even considered and that a hold will be counterfactual to evidence on the ground. The committee members also cited evidence that raising rates was reducing inflation which may have risen to as high as 32% as against 22.22% if rates were not aggressively raised in April. The committee decided to increase MPR by 50 basis points to 18.5% with asymmetric corridor of +100/-700 basis points around the MPR was retained; CRR was retained at 32.5%; While the Liquidity Ratio was also kept at 30%

Financial experts and economists had predicted that the CBN’s Monetary Policy Committee (MPC) would raise the benchmark interest rate, known as the Monetary Policy Rate (MPR), due to increasing inflation in the country. They believed that the MPC would take into account the inflationary pressures while also considering growth dynamics. Afrinvest (West) Africa Limited analysts had conducted a comprehensive analysis of the global and domestic macroeconomic landscape since the last MPC meeting in March. Based on their assessment, they had said they did not expect the CBN to maintain or reduce the anchor rate. Instead, they project a modest 50 basis points (bps) increase in the MPR to 18.5 percent. This increase is likely to have an impact on market yield and savings rates.

CSL Stockbrokers anticipated a 25 basis point increase in inflation. “We believe the inflation rate at this level still falls below CBN’s expectations, hence we eliminate the possibility of a rate cut. Moreover, the CBN will likely toe the line of its global peers, hence, we anticipate a 25bps increase in the Monetary Policy Rate.” Nigeria has been grappling with a galloping inflation rate as well as a depreciating exchange rate both at the parallel and the official market. Headline inflation rose to its highest level in over 17 years in April 2022, eroding the purchasing power of citizens. The central bank continues its effort to tame inflation using monetary policy tweaks, by increasing interest rates.

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