By Tolulope Oke
The Central Bank of Nigeria (CBN) through its Monetary Policy Committee (MPC) has raised its interest rate by 100 basis points, indicating an increase to 14 per cent.
This comes barely two months after the CBN increased the interest to 13 per cent, citing the accelerating rate of inflation across the globe.
According to CBN Governor Godwin Emefiele, the MPC members’ concerns about the growing inflation, which had increased to 18.6% in June, were the driving force for the decision to hike the interest rate.
He issued a warning that the MPC would keep raising benchmark interest rates as long as there was inflationary pressure.
However, the Committee kept the asymmetrical corridor around the MPR at +100 and -700 basis points, the cash reserve requirement (CRR) at 27.5%, and the liquidity ratio at 30%.
In his words, “MPC noted with concern the continued aggressive movement in inflation even after the rate hike in the last meeting and expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen our fragile economy.”
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Furthermore, Emefiele noted that there was a need to continue strengthening monetary policy given the sharp increase in inflation, along with the consequent detrimental consequences, specifically on the purchasing power of the poor and slowing GDP.
In his opinion, the key policy conundrum revolved around how much tightening was required to combat inflation without reducing industrial output and raising borrowing costs.
Accordingly, he stated that the committee “decided to enhance the MPR by 100 basis point from 13% to 14.0%. Keep the CRR at 27.5 percent, the liquidity ratio at 30%, and the asymmetric corridor around the MPR at +100 and -700 basis points.
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