CBN raises lending rate to 27.25%
Omeiza Bilal
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) Tuesday raised the monetary policy rate by 50 basis points to 27.25 per cent from 26.75 per cent.
The MPC held its 297th meeting on the 23rd and 24th of September 2024 to review recent economic and financial developments as well as assess risks to the outlook. Eleven of the twelve members of the Committee were in attendance.
The Apex Bank had raised the MPR contrary to predictions by the majority of analysts who had predicted a reduction in interest rate by the Apex Bank.
According to the communiqué issued at the meeting in Abuja, chaired by the CBN Governor, Olayemi Cardoso, the committee was unanimous in its decision to further tighten policy and thus decided as follows: “Raise the MPR by 50 basis points to 27.25 per cent from 26.75 per cent. Retain the asymmetric corridor around the MPR at +500/-100 basis points. 3. Raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis points to 50.00 per cent from 45.00 per cent and Merchant Banks by 200 basis points to 16 per cent from 14 per cent.
“Retain the Liquidity Ratio at 30.00 per cent.”
The document said the committee noted the moderation in headline inflation year-on-year in July and August 2024. In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the Bank’s tight monetary policy stance. This is expected to improve confidence which will enable economic agents to plan in the medium to long term.
“The Committee was, however, unanimous in recognising that a lot more is required to actualize the Bank’s price stability mandate. The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices.
“The uptrend poses severe concerns to members, as it clearly indicates the persistence of inflationary pressures. Members thus, reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices.
“The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures. Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through Ways & Means.
“Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as its impact on the exchange rate. The Committee, therefore, agreed to increase monitoring of future releases with a view to addressing its effects on price developments,” the meeting stated.
Speaking on the outcome of the MPC meeting, Director of the Capital Market Institute at the Nasarawa State University Keffi, Prof Uche Uwaleke the decision to raise the MPR was due to the need to address major threats to exchange rate and inflation.
He said, “My take on the recent hike in MPR is that in matters like this, the CBN usually has information that may not be at the disposal of the public.
“I want to believe the members of MPC mean well for the economy and have taken the decision to further tighten monetary policy based on strong evidence of major threats to exchange rate and inflation.”
Accordingly, Uwaleke said the task of taming inflation must be jointly tackled by both the monetary and fiscal authorities.
“So, the government has to play its part by controlling recurrent spending and focusing on productivity including ramping up assistance to small businesses,” he said.
