CBN increases interest rate to 24.75%

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR), which benchmarks interest rates, from 22.75 percent to 24.75 percent.

Olayemi Cardoso, CBN’s governor, announced the rate adjustment at a news conference on Tuesday during the committee’s 294th meeting in Abuja.

The MPR is the baseline interest rate in an economy, every other interest rate used within the economy is built on it.

The rate hike is the second monetary policy decision made by the committee since Cardoso assumed office on September 26, 2023.

Speaking to journalists, the CBN governor said the committee raised the MPR by 200 basis points to 24.75 percent, and retained the asymmetric corridor at +100 basis points and -300 basis points around the MPR.

He said the committee also retained the cash reserve ratio (CRR) at 45 percent and the liquidity rate at 30 percent.

On February 27, the apex bank increased the interest rate by 400 percentto 22.75 percent.

The latest hike emphasises the bank’s aggressive stance on monetary policy tightening to curb inflation.

Speaking on the rationale behind the raise, Cardoso said the major objective of the CBN is to manage inflation, but said the bank is not “unmindful of the impact that the interest rate increases are having”.

He said with the interest rate increases, the foreign exchange market “becomes a lot more lively” — a situation the CBN governor said is reducing the exchange rate and cost.

“So, it’s not a one-sided affair that the increase in interest rates is strangulating the economy. While it may have those tendencies of one side, with the foreign exchange rate coming down, that also helps to moderate the overall,” Cardoso said.

“As I’ve said earlier, we would expect that this would not be too long drawn, at least I would hope so.

“We’re getting towards a situation where the exchange rate is moderating and we expect it to continue to moderate and then it finds a level which quite frankly, is sustainable.

“That’s a very, very important level that is sustainable, which obviously will involve huge collaboration with the fiscal side because a lot of that cannot just rely on the monetary side alone.”

Cardoso said the MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable.

“The committee, thus, called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro prudential guidelines,” he said.

The CBN boss said the committee also enjoined the regulator to “expedite action on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalized world”.