CBN Hikes Interest Rate by 4%
Yemi Cardoso

The Monetary Policy Committee (CBN) of the Central Bank of Nigeria (CBN) increased the benchmark interest rate by 4% at the end of the first bimonthly meeting. The aggressive interest rate hike follows a spike in inflation to 29.90% in January, 2024.

The authority’s decision to tighten the monetary system is coming after a series of inflation-targeting interest rate hikes in 2023. The apex bank is on a mission to reduce inflation to 20.4% in 2023, CBN Governor Olayemi Cardoso said in a speech.

In its post MPC, the CBN governor said the monetary policy committe identified non-monetary factors driving inflation upward. these factors according to him include persisting insecurity in the country and infrastructre deficit.

Meanwhile, the latest hakwish tone at the February meeting has lifted the benchmark interest rate to 22.75%, it was at its lowest 11% in 2023. The monetray policy commitee rate tightening could reduce private sector growth due to higher borrowing rates from banks for expansions.

At the end of the meeting, MPC also increased the asymmetric corridor to +100 basis points and -700 basis points band from +100 basis points and-300 basis points band held previously. The policy committee further increased banks’ cash reserve ratio to 45.0% from 32.5% under the previous regime. Meanwhile, the liquidity rate has been retained at 30.0%.

The CBN concluded its first Monetary Policy Committee (MPC) meeting under the CBN Governor Yemi Cardoso today and in a commentary note, analysts said they anticipate sustenance of its contractionary monetary measures. Despite the administration’s preference for a low-interest rate environment, CSL Stockbrokers said it expects a 100bps increase in the Monetary Policy Rate (MPR).

However, the committee is more aggressive with 4% interest rate hike in a swoop. Analysts said they believe price pressures and the need to attract foreign portfolio investors (FPIs) will remain top on the committee’s mind, necessitating a rate hike.

They had predicted that other policy parameters such as the cash reserve ratio (CRR), liquidity ratio and asymmetric corridor to remain unchanged. But the MPC decision came as rude shock to some investment banking firms who had expected a cold response to nosediving macroeconomic indicators at the meeting.

The committee raised the MPR rate by a cumulative 225 basis points in a bid to stem rising inflation in 2023. Analysts said they maintain the view that continuous rate hikes will further limit and put the country’s fragile growth at risk while having a minimal effect in combating inflation and attracting foreign inflows.

In his speech, Governor Cardoso expressed confidence in the ongoing reforms within the foreign exchange market, anticipating favourable outcomes in the short to medium term. He emphasized the importance of collaboration with the fiscal sector to ensure the effective functioning of various sectors within the economy.

He reiterated the Bank’s stance on withdrawing from quasi-fiscal interventions in the agricultural sector and disclosed plans for loan recovery under intervention programs. He highlighted a shift towards a more stringent regulatory environment.

Regarding recent actions against Bureau de Change operators, the Governor clarified that these were aimed at unlicensed operators and curbing speculation. Expressing optimism, Governor Cardoso underscored stability in the Nigerian Foreign Exchange Market (NFEM), reaffirming the commitment to uphold trust. He assured that the CBN would address all pending verified requests promptly.

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