CBN”s MPC further hikes rates to 26.25%, third this year

Central Bank of Nigeria CBN, Monetary Policy committee MPC, has further hike interest rate it charges bank which is big interest rate hike in response to a continued rise in inflation which hit a 28-year high in April. Central Bank of Nigeria Governor Olayemi Cardoso said the bank’s Monetary Policy Committee (MPC) was faced with a decision to either raise or hold rates while it observed the impact of previous hikes, but opted for an increase in the interests of price stability. The Monetary Policy Rate was raised by 150 basis points (bps) to 26.25%, the third rate increase this year after hikes of 200 bps in March and 400 bps in February. “The balance of risks suggests further tightening of policy to build on the benefits from previous hikes,” Cardoso told a news conference. Economists had widely predicted another hike given soaring inflation and the highly volatile Naira currency .

“A bold policy move was required to bring Nigeria’s real rates closer to positive territory and halt the Naira’s decline,” said Danny Greeff, an analyst at ETM Analytics. Inflation rose to 33.69% year-on-year in April – a level not seen since mid-1996 – spurred by the government slashing petrol and electricity subsidies and twice devaluing the Naira since President Bola Tinubu took over last year. The central bank has more work to do to rein in price pressures and there could be more rate hikes to come, analysts said. The International Monetary Fund has welcomed the central bank’s previous hikes and called for decisions to be data-driven. Cardoso has pledged to curb inflation, support the Naira and depart from the unorthodox policies of his predecessor who blurred the lines between monetary and fiscal policy with direct interventions to try to lift economic growth. The government is also struggling to lift output from its crucial oil sector and keep a lid on rampant insecurity that has left swathes of the country outside its control. The central bank’s next rate-setting meeting is scheduled for July.

CBN faced with a sharp Naira slump since mid-April and 28-year high inflation of 33.69%, had little choice but to increase the Monetary Policy Rate (MPR) by 150 basis points, bringing it to 26.25% in a move to help restore price stability and positive real rates. This hawkish stance is designed to combat soaring inflation and stabilise the Naira. While the recent moderation in monthly inflation figures offers a glimmer of hope, the persistent rise in headline inflation remains a significant concern. Despite the challenging economic climate, the CBN’s steadfast stance against inflation carries potential risks, including businesses struggling with rising production costs, diminishing demand, forex crises, and other pertinent challenges that may lead to the gradual erosion of economic vitality. During the 295th MPC meeting held on May 20th and 21st, the committee also voted to maintain the asymmetric corridor at +100/-300 around the MPR, retain the Cash Reserve Ratio (CRR) for commercial banks at 45.00%, and keep the liquidity ratio steady at 30.00%.