The Central Bank of Nigeria (CBN) has announced an increase in its Monetary Policy Rate (MPR) to 27.25%. This decision was made during the apex bank’s Monetary Policy Committee (MPC) meeting, chaired by CBN Governor Yemi Cardoso, held on Tuesday.
The increase aims to combat rising inflation and stabilize the economy amid persistent economic challenges. Following a two-day MPC meeting in Abuja, CBN Governor Olayemi Cardoso revealed that the 11 committee members reached a unanimous decision to raise the MPR.
This move is intended to further curb inflationary pressures, even as signs of moderating inflation have emerged.
In addition to the MPR hike, the CBN also raised the Cash Reserve Ratio (CRR) for commercial banks by 500 basis points to 50 percent, up from 45 percent. Merchant banks saw a smaller increase, with their CRR raised by 200 basis points to 16 percent, up from 14 percent.
Governor Cardoso explained that the committee retained the asymmetric corridor at +500 and -100 basis points around the MPR. He added, “The committee also increased the cash reserve ratio (CRR) from 45 percent to 50 percent, while retaining the liquidity rate at 30 percent.”
During the meeting, Cardoso emphasized the importance of monitoring future releases to mitigate their impact on price developments. He stated, “It will help improve confidence, which will enable economic agents to plan in the medium to long term.”
“The committee was, however, unanimous in recognising that a lot more is required to actualise the bank’s price stability mandate,” he remarked.
The MPC noted that while headline inflation has trended downwards due to a moderation in food inflation, core inflation remains elevated, largely driven by rising energy prices. Cardoso highlighted the committee’s concerns, stating, “The uptrend poses severe concerns to members as it clearly indicates the persistence of inflationary pressures.”
He further noted the need for collaboration with fiscal authorities, saying, “Members thus reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices.”
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Additionally, the MPC recognized the continued growth in money supply and the necessity to curtail excess liquidity in the system, as well as address foreign exchange demand pressures.
Cardoso expressed worries about fiscal deficits but acknowledged the federal government’s commitment, saying, “Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through ways and means.”
He also commended the federal government for its efforts to stabilize food prices, expressing optimism that “the lifting of refined petroleum products from Dangote Petroleum Refinery will moderate transportation costs and significantly support the easing of food price pressures in the short to medium term.”
“This is also expected to moderate foreign exchange demand for importation of refined petroleum products, with a positive spillover on external reserve and improvement in the overall balance of payment position,” he added.
In July 2024, the CBN had previously raised its Monetary Policy Rate by 800 basis points to 26.75%, marking an increase from 13% in May 2022.
