CBN Raises Interest Rates to 18.5%, Highest in 22 Years

The Monetary Policy Committee (MPC), the highest policy making committee of the Central Bank of Nigeria (CBN) has increased its benchmark interest rate (MPR) for the third time this year by 50 basis points to 18.5% in its recently concluded MPC meeting.

Godwin Emefiele, the governor of the CBN revealed this at the post-MPC press briefing held on Wednesday 24th, 2023.

The CBN made the decision based on the rising inflation rate in the Nigerian economy. Headline inflation rose to 22.22% in April 2023 from 22.04% recorded in the previous month, representing its highest level since September 2005. The body’s interest rate of 18.5% represents its highest level in 22 years.

The central bank Governor explained that it has unanimously voted to hike its monetary policy rates or interest rates by 50 basis points, as 10 members voted for a 50 basis point hike and 1 member 25 basis point.

The CBN opined reducing Monetary Policy Rate (MPR) was not put into consideration and that a hold will be counterfactual to evidence on the ground.

They also cited some instances that raising rates was reducing inflation which may have risen to as high as 32% as against 22.22% if rates were not aggressively raised in April

The zenith of the committee’s decision 

The MPR would be increased by 50 basis points to 18.5%. Also, the asymmetric corridor of +100/-700 basis points around the MPR was retained and the Capital Requirements Regulation (CRR) was also retained at 32.5%. The Liquidity Ratio was also kept at 30%.

Reason for CBN’s decision

Nigeria has been struggling with a high rate of inflation as a depreciating exchange rate both at the parallel and the official market. The headline inflation rose to its highest level in over 17 years in April 2022, eroding the purchasing power of citizens,

The central bank of Nigeria continues to control inflation using monetary policy tweaks, by increasing interest rates. Reports predicted a rate hike of 25-50 basis points if the central bank is to slow down the fast pace of inflation.