The Central Bank of Nigeria’s Monetary Policy Committee unanimously voted to raise the benchmark interest rate (monetary policy rate) to 14 per cent from 13 per cent, the apex bank’s second hawkish move in 2022 in response to rising inflation.
This was revealed by the CBN Governor, Godwin Emefiele, while reading the communique of the first monetary policy committee meeting of the year, which took place on Tuesday, July 19, 2022.
The Central Bank raised the interest rate from 11.5 per cent to 13.5 per cent in May 2022 during its most recent MPC meeting, but with inflation still hovering above 18 per cent, the CBN raised the rate to 14 per cent to combat the rising costs of goods and services.
According to the National Bureau of Statistics (NBS), Nigeria’s inflation rate reached an over 5-year high of 18.6 per cent in June 2022, up from 17.71 per cent the previous month, owing primarily to increases in energy and transportation costs.
MPR increased by 100 basis points, from 13% to 14%. The asymmetric corridor of +100/-700 basis points that encircled the MPR was kept. CRR was kept at 27.5 per cent. The liquidity ratio was also maintained at 30%.
It’s worth noting that Nigeria last used a 14 per cent interest rate in February 2019. Other complementary measures implemented by the apex bank to address the growth of the money supply, according to the MPC, did not moderate the increase in inflationary pressure.
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The governor of the CBN, Godwin Emefiele said that the committee resolved that the most rational policy option will be to further strengthen its tightening stands to effectively curtail the unabated rising trend of inflation.
The latest rate hike by the central bank’s monetary policy committee is the central bank’s second since July 2016, as the apex bank previously preferred a dovish monetary stance, hoping that increased borrowing will boost the economy.
However, inflationary pressures have reached record highs globally as a result of the global energy crisis caused by the Russia-Ukraine war, prompting many monetary regulators around the world to act aggressively against inflation by raising interest rates.
Following the surge in Nigeria’s inflation numbers to 18.6 per cent in June 2022, the highest in 65 months, the Nigerian central bank has also followed in this direction. The CBN’s hawkish move means that businesses and individuals seeking credit from banks will have to pay higher interest rates.
This is hoped to tighten liquidity in the economy and help curb rising inflation rates, as well as spur foreign inflows, given the country’s sustained scarcity of foreign currency, which has caused the official exchange rate to depreciate to N430/$1 and the black market rate to depreciate to N630/$1.
