The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has taken a significant step by increasing the benchmark interest rate by 400 basis points to a record high of 22.75%. The decision was announced by CBN Governor, Olayemi Cardoso, during the reading of the communiqué following the first MPC meeting of the year, held in Abuja.
Addressing journalists after the two-day meeting, Cardoso highlighted that the committee unanimously agreed to tighten monetary policy further. Alongside the increase in the Monetary Policy Rate (MPR), the committee adjusted the asymmetric corridor around the MPR to +100 to -700 basis points from the previous range of plus 100 to -300 basis points. Additionally, the cash reserve ratio was raised from 32.5% to 45%, while the liquidity ratio was retained at 30%.
The decision to raise the MPR to 22.75% marks a significant shift in monetary policy and reflects the committee’s determination to address prevailing economic challenges. This move comes after the MPC, under the leadership of former acting governor Folashodun Shonubi, had increased the MPR by 25 basis points to 18.75% during the July 2023 meeting.
The decision to tighten monetary policy underscores the CBN’s commitment to managing inflation and stabilizing the economy amidst evolving global and domestic economic conditions. While these measures may have implications for borrowing costs and liquidity in the financial system, they are deemed necessary to address inflationary pressures and ensure macroeconomic stability.
