CBN insists On Deadline For Old Naira Notes, Raises Interest Rate To 17.5%
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CBN insists On Deadline For Old Naira Notes, Raises Interest Rate To 17.5%

The Central Bank of Nigeria(CBN) has raised its benchmark interest rate from 16.5% to 17.5%. The monetary policy committee of the apex bank voted in its January 2023 meeting to increase the rate.

Speaking after the meeting, CBN’s Governor, Godwin Emefiele maintained that the January 31, 2023 deadline for the validity of the old N200, N500 and N1,000 notes stand. He revealed that some persons are hoarding the naira, hence the reason for the rise of the currency in circulation from N1.4 trillion to N3.2 trillion.

CBN’s increased interest rate

The apex bank noted that the Monetary policy Committee raised the interest rate by 100 basis points to 17.5%. But it retained the asymmetric corridor at +100/-700 basis points around the MPR. It also maintained a Cash Reserve Ratio (CRR) of 32.5% while the liquidity ratio is kept at 30%.

The CBN Governor hinted that the committee considered the scarcity of Premium Motor Spirit, otherwise known as petrol, the 2023 general elections, exchange rate pressure and the continuous rise in security as factors for the increased interest rate.

Emefiele further revealed that the committee expressed hopes that the naira redesign will hugely moderate price development on cash.

What does the CBN’s increase mean?

The decision to further tighten the monetary policy rate was made despite the moderation of the headline inflation rate in December 2022 to 21.34% from 21.47% recorded in the previous month. 

The recent increase brings the apex bank’s determination to stem high inflation to the fore. CBN plans to implement this by reducing access to credit and mopping up excess liquidity. It is also important to understand that the monetary stance is in line with the new naira note design as well as the reduction in the minimum over-the-counter cash withdrawal.

The new monetary policy rate will also tighten the negative real returns in the fixed-income market, which had deterred foreign investments. 

Its latest increase represents the highest rate since 2001 when the benchmark interest rate averaged 20.5%.

NEXT:CBN Reduces Cash Withdrawals to 100K Per Week

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