In a decisive move, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) announced yesterday a significant increase in the base interest rate by 400 basis points to 22.75 per cent.
This decision carries significant implications, particularly for borrowers accessing funds from Deposit Money Banks (DMBs). As a result, customers seeking loans from commercial banks and other lenders will face higher costs to secure financing.
The MPC cited inflationary pressures and the need to stabilize the foreign exchange market as primary reasons for this interest rate hike.
Led by CBN Governor Mr. Yemi Cardoso, the MPC’s decision marks a notable shift in monetary policy. The benchmark interest rate, known as the Monetary Policy Rate (MPR), has been raised to 22.75 per cent from 18.75 per cent, the highest level since 2017. This adjustment aims to deter borrowing by making it more expensive, thereby reducing the money supply and mitigating inflationary pressures.
In addition to the interest rate hike, the MPC also raised the Cash Reserve Ratio (CRR) from 32.5 per cent to 45 per cent. This move compels banks to hold a larger portion of customer deposits as reserves with the CBN.
Overall, the CBN’s measures signal a proactive approach to addressing economic challenges, particularly inflation and exchange rate stability. However, the decision is expected to impact borrowers who will face higher costs in accessing credit from banks.
