Cardoso
The Central Bank of Nigeria (CBN) has further raised its benchmark interest rate by 50 basis points to 26.75 percent from 26.25 percent.
CBN Governor, Olayemi Cardoso, who disclosed this to journalists at the end of the 296th Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, said the decision is part of an aggressive attempt to tame the nation’s headline inflation rate currently at 34.19 percent.
The apex bank, however, retained the Cash Reserve Ratio (CRR) for deposit money banks at 45 percent and the Liquidity Ratio at 30 percent.
The benchmark interest rate, also called the monetary policy rate (MPR), determines the cost of borrowing in the economy. It can be considered the interest rate the CBN uses to lend to banks who then lend to customers at a higher rate.
The CBN has since February 2024, hiked MPR by 750 basis points, making the cost of borrowing increased to about 26.25 per cent.
Stakeholders had raised concerns and warned the CBN against further hikes in interest rates.
Earlier, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) warned against the potential consequences of another MPR. National President of NACCIMA, Dele Oye, pointed out that while an increase in interest rate might help control inflation, it often resulted in higher costs and increased uncertainty, which could have a range of negative impacts on businesses and growth prospects.
Oye said further rate hikes would increase borrowing costs, lead to reduced investment, decreased consumer spending, impact on stock prices, cash flow challenges, inflation control, and long-term planning, among others.
Also cautioning the CBN against further hikes in interest rates, Director, Institute of Capital Market Studies, Nasarawa State University, Keffi (NSUK), Professor Uche Uwaleke, noted that despite the aggressive hike in the MPR between February and May, “headline inflation rose to 34.19 per cent year-on-year in June”.
He added, “Production is stifled because of the very high cost of funds. Moreover, the seeming overreliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria, such as the high cost of energy, transport, as well as insecurity in the food-belt regions of the country.”
Similarly, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Chijioke Ekechukwu, said the previous hike in MPR was already stifling the economy.
However, Cardoso, on Tuesday, expressed optimism that the various tools deployed by the bank to tame inflation and create a stable foreign exchange market would yield the needed results in the coming months.
“The committee was mindful of the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control.
“It re-emphasised its commitment to the bank price stability mandate and remained optimistic that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near term,” he said.
According to Cardoso, these decisions hinged on the success of the monetary policy in addition to other measures by the fiscal authority to address food inflation.
