CBN Defies Tinubu, Raises Interest Rate To 18.75%
The Central Bank of Nigeria (CBN) on Tuesday asserted its autonomy and increased the benchmark interest rate from 18.5 per cent to 18.75 per cent against President Bola Tinubu’s wish to bring down the monetary policy rate (MPR).
At the end of the 292nd meeting of CBN’s Monetary Policy Committee (MPC) in Abuja on Tuesday, the majority of members voted to raise interest rates moderately by 25 basis points, citing the need to “sustain effort at anchoring inflation expectations, narrowing the negative interest rate gap and improve investor confidence.”
This is the first MPR decision of the monetary committee following President Bola Tinubu’s inauguration on May 29, 2023. The MPR is the benchmark interest rate in Nigeria which determines the prevailing lending rates that deposit money banks (DMBs) apply in dealing with customers and which invariably affects the cost of borrowing for businesses and individuals.
The Monetary Policy Committee meeting was chaired by the acting CBN Governor, Folashodun Adebisi Shonubi. According to Shonubi, eleven members of the committee were present during the meeting and four members voted in favour of a moderate hike by 25 basis points, two voted for a hike by 50 basis points and five voted to hold MPR constant.
However, all members voted to narrow the asymmetric corridor to +100/-300 basis points around MPR while retaining the credit reserve ratio (CRR) at 32.5 percent, and liquidity ratio at 30 percent.
The Acting CBN Governor said MPC members agreed that the previous increases in rates had indeed greatly moderated price increases.
“The option to hike the rate, albeit moderately, presented a strong alternative. This is premised on the expected liquidity injection into the economy from the recent policy developments and likely impact on inflation,” the Acting CBN Governor, Folashodun Shonubi, told journalists during the post-MPC briefing in Abuja.
Inflation in Nigeria rose to 22.79 percent in June 2023. The main drivers of inflation are rising food prices and the depreciation of the naira.
At the previous Monetary Policy Committee meeting under former CBN governor Godwin Emefiele, interest rates were raised from 18.0 percent to 18.5 percent. However, prices have remained high.
Shonubi pointed out that the removal of subsidies and the unification of the exchange rate in the local market contributed to the recent uptick in inflation, showing an acknowledgment of the existence of foreign exchange pressures, leading to economic uncertainties.
He forecast that the economy would continue to recover at an estimated 2.66 rate.
It will be recalled that Nigeria’s new president who was sworn in on May 29, said during his swearing-in ceremony that his administration was going to bring down interest rates in order to encourage credit to the productive sector.
He has since initiated a series of economic reforms intended to boost economic growth and investors’ confidence in the economy.
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