By our reporter| The Central Bank of Nigeria on Tuesday raised the Monetary Policy Rate (MPR), which measures interest rate, to 15.5 percent from 14 percent to tame rising inflation.
CBN Governor, Godwin Emefiele, who made the disclosure after a Monetary Policy Committee meeting in Abuja while addressing reporters
said 10 members of the committee voted for the rate hike.
The committee also raised the cash reserve ratio (CRR) to 32.5 percent from 27.5 percent. CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash.
According to Emefiele, the aggressive rate hike would shape the country’s economic growth.
“The committee voted unanimously to raise the MPR…The MPC voted to raise the MPR to 15.5, retain the asymmetric corridor at +100 -700 basis points around the MPR. Increase the Cash Reserve Ratio (CRR) to a minimum of 32.5% and retain liquidity ratio at 30%,” he said.
“Members deliberated the impact of the widening margin between the current policy rate of 14 percent and the inflation rate of 20.52 percent.
“At this meeting, the option of reducing the policy rate was not considered as this would be gravely detrimental to reigning in inflation. The committee thus agreed unanimously to raise the policy rate to narrow the interest rate gap and reign in inflation. The committee thus voted unanimously to raise the MPR.
“10 members voted to raise the MPR by 150 basis points, one (voted to raise it) by 100 basis points, and one by 50 basis points. 10 members voted to increase CRR (Cash Reserve Ratio) by 500 basis points, while two members voted to increase it by 750 basis points.”
“It was of the view that with the aggressive policy normalisation of the economies, losing the stance of policy will result in a sharp decrease of exchange rate leading to further hikes that will be afloat,” he added.
“Also, it will help consolidate the impact of the last two policy rate hikes which is already reflected in the slowing growth rate of oil supply in the economy. We also understand that an aggressive rate hike will slow capital outflows and likely attract capital inflows and appreciate naira.
“We will keep increasing the interest rate to reduce the high effect of inflation.”
The apex bank chief further stated that as inflation continues to reign upward, the MPC will always hike rates to tame the pressure on citizens.
“The tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates,” he added.
“CBN research study has shown that once inflation trends above 12.5 or 13 percent, it will retard growth. So it is difficult for us, with all data available, not to go in a very aggressive way. To some, not expected because it increases the cost of borrowing, but this is the best we can,” he said.