CBN: MONETARY POLICY RATE TO 22.75% TACKLE INFLATION AND BOOST INVESTOR CONFIDENCE

CBN Raises Monetary Policy Rate to 22.75% in Bid to Tackle Inflation and Boost Investor Confidence

CBN GOVERNOR, Olayemi Cardoso 

The Central Bank of Nigeria's Monetary Policy Committee MPC has announced a significant increase in the Monetary Policy Rate MPR from 18.75 percent to 22.75 percent. The decision was revealed by CBN Governor Olayemi Cardoso at a news conference following the committee's meeting in Abuja.

The MPR serves as the baseline interest rate in the economy, influencing other interest rates. Alongside the MPR adjustment, the committee also widened the asymmetric corridor around the MPR to +100 to -700 basis points from +100 to -300 basis points.

Additionally, the committee raised the Cash Reserve Ratio (CRR) from 32.5 percent to 45 percent while maintaining the Liquidity Ratio at 30 percent. This decision marks the first rate adjustment since Governor Cardoso assumed office in September 2023.

The decision to increase rates comes amid a backdrop of rising inflation, which climbed to 29.9 percent in January 2024, up from 28.92 percent in the previous month. Factors contributing to the inflationary pressures include escalating energy costs, high fiscal deficits, and ongoing security challenges in key food-producing regions.

Governor Cardoso noted that global factors such as tight financial conditions and trade disruptions from geopolitical tensions are additional risks to domestic inflation. He emphasized the committee's commitment to implementing measures to bolster investor confidence, attract capital inflows, and monitor global and domestic economic developments to mitigate inflationary and exchange rate pressures.

The next MPC meeting is scheduled for March 25 and March 26. Analysts had anticipated a more moderate rate adjustment, with expectations centered around a 225 basis points increase to 21.00 percent. The decision to raise the MPR by 400 basis points reflects a proactive stance by the CBN to address inflation and stabilize the economy.

President Bola Ahmed Tinubu had previously advocated for lower interest rates to stimulate investment and consumer spending. However, the CBN's current move signals a prioritization of inflation control and economic stability.

The decision is expected to have implications for borrowing costs, investment decisions, and overall economic activity in Nigeria. Market participants will closely watch for further developments as the CBN continues to navigate the challenging economic landscape.