In a move that stunned the financial markets, the Central Bank of Nigeria (CBN) Monetary Policy Committee voted to further raise interest rate by 50 basis points to 27.25%.
The Governor of the CBN, Mr. Yemi Cardoso who doubles as the Chairman of the MPC disclosed this at the end of the MPC meeting held in Abuja.
The apex bank further increased the Cash Reserve Ratio (CRR) of commercial banks by 500 basis points from 45% to 50% while that of merchant banks was increased by 200 basis points to 16%.
Furthermore, the MPC raised the asymmetric corridor around the MPR to +500 and –100 basis points while the liquidity ratio was retained at 30%.
The Governor of the CBN noted that the decision to further tighten the monetary policy was a unanimous one by members of the Monetary Policy Committee (MPC).
According to the CBN, the decision to raise interest rate was premised on recent events in the economy regarding inflation and the stability of the foreign exchange market.
He mentioned the threats of food inflation, flooding in many parts of the country, rising petrol and energy prices as reasons while further monetary policy tightening should be executed.
On its one-year anniversary, the management of the CBN under Yemi Cardoso will continue on its bullish monetary policy stance it began around February this year.
The recent 50 basis points hike in MPR will result in cumulative 850 basis points increase in MPR under the management of Governor Yemi Cardoso.
It also continues the spate of interest rate hike going as far back as May 2022 when the hawkish monetary policy actions began.
Analysts had expected the apex bank’s MPC to take a slightly dovish stance in interest rate in the light of two consecutive months of slowdown in inflation in July and August after almost 19 months of consecutive increase.
Nigeria’s inflation rate in July slowed to 33.4% from 34.19% in June 2024 and further eased to 32.2% in the August.
However, there are fears that Nigeria’s inflation will increase after the two-month deceleration on the back of petrol scarcity and subsequent increase in petrol prices by the NNPCL.
Last month, the NNPCL informed Nigerians of the increase in petrol pump price from N617 per litre to N897 with transport prices increasing as well.
The decision to increase interest rate also means the apex bank’s desire to attract Foreign Portfolio Investment (FPIs) into the country even as the United States Federal Reserves cut rates earlier this month.