The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has significantly increased interest rate to 22.75 percent.
The decision to hike interest rate was taken by the MPC in its bid to combat inflation and stabilide the foreign exchange market.
Under the leadership of CBN Governor Yemi Cardoso, the Monetary Policy Committee (MPC) announced key decisions on Tuesday, February 27, in Abuja.
The benchmark interest rate, referred to as the Monetary Policy Rate (MPR), was increased by 400 basis points to 22.75 percent from 18.75 percent.
This is the highest MPR since 2017 and aims to make borrowing more expensive, thereby reducing money supply and curbing inflation.
The Cash Reserve Ratio (CRR), the portion of customer deposits that banks must hold as reserves with the CBN, was raised from 32.5 percent to 45 percent.
This further restricts the amount of money available for lending in the economy, contributing to inflation control.
The asymmetric corridor around the MPR was adjusted to +100/-700 basis points from +100/-300 basis points. This provides the CBN with more flexibility to manage liquidity in the banking system while the Liquidity Ratio, the minimum amount of liquid assets that banks must maintain, remains at 30 percent.
Going forward, the CBN Cardoso said has acknowledged the importance of working with the government to address non-monetary factors contributing to inflation, such as “insecurity and infrastructural deficits”.
