CBN raises interest rate to 13% from 11.5%

THE Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR) to 13.5%, in a bid to mop up excess liquidity ahead of the 2023 general election.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria on Tuesday, May 24, 2022 concluded its two-day meeting, the third of the year.

At the end of the meeting, the Committee decided to raise the monetary policy rate (MPR) and keep other policy parameters. The Reference Interest Rate (MPR), which is the benchmark interest rate, was raised by 150 basis points (bps) to 13.00% from 11.50 percent.

It left the asymmetric corridor at +100/-700 bps around the MPR; maintained the cash reserve ratio at 27.50% and the liquidity ratio at 30.00%.

The decision of the committee according to the director general of the Center for the Promotion of Private Enterprise [CPPE]Dr. Muda Yusuf will increase the cost of funds for small and medium business borrowers, impact their operating costs, product prices and profit margins.

According to him, although there are negative effects on the equity market, investors in fixed income instruments could benefit from the rise.

Meanwhile, CBN Governor Godwin Emefiele while briefing reporters at the end of the committee meeting held at the headquarters of the apex bank in Abuja, said that the sharp rise in inflation in advanced economies and emerging markets has raised concerns among central banks as rising inflation driven by rising aggregate demand and rising wages has put lasting pressure on price levels.

It should be noted that this was the first time in two and a half years that the policy-making committee of the country’s financial regulator increased the MPR, which measures the interest rate.

The MPR is the base interest rate in an economy, while all other interest rates used in such an economy are based on it.

According to Emefiele, “Therefore, major central banks such as the US Fed, Bank of England, European Central Bank and Bank of Canada have provided strong indications of a gradual shift away from accommodative monetary policy to boost rates. market interest, which could end up having an impact on capital flows from emerging market economies.

He explained that at the 285th meeting of the MPC, six of the 11 committee members voted to raise the policy rate.

He advised the various banks in the country and the federal government to redouble their efforts to support the monetary authority.

The change in rates suggests that the apex bank has finally accepted the impact of inflation on its monetary policies.

So far, he has favored a policy that forced the government to seek to resolve supply bottlenecks, while believing that lower interest rates could help stimulate lending and therefore increase the economic growth.

“While growth continued to improve, members noted that inflation was facing upward pressures due to emerging risks within the internal and external environment. The MPC, however, noted that the strong upward push in price levels continued to be influenced by supply-side factors such as PMS scarcity, continued insecurity and the backlash from the Russian-Ukrainian war. prudent and targeted to be addressed and resolved.With this in mind, the MPC urged the Bank to continue to use the tools at its disposal, while strengthening its collaboration with the budgetary authority to ensure that inflation is kept under control. adequately and for growth to return to a strong and sustainable path,” the MPC statement read in part read.

However, listing the main drivers of inflation, Yusuf noted that liquidity problems in the foreign exchange market were affecting access to manufacturing and other inputs.

Stephen V. Lee