MPC Hikes Interest Rate to 15.5% to Fight Inflation
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) hiked the benchmark interest rate by 150 basis points to 15.5% after a two-day meeting ended today while the cash reserve ratio was adjusted upward to 32.5%.
The monetary tightening comes amidst inflation rate pressure continuing to worsen in Africa’s largest economy with about $450 billion in gross domestic product. In August, the consumer price index rose to 20.52%, the level seen seventeen years ago.
At the meeting, the monetary policy committee evaluated the developments in the global economy and domestic environment so far in 2022, particularly the rising energy prices and supply chain disruption triggered by the ongoing war between Russia and Ukraine.
The committee also reviewed the global and domestic financial environment as well as the outlook and possible risks for the remaining months in 2022. Twelve members of the committee were in attendance and they decided to raise the monetary policy rate for the third consecutive time in the year.
The MPC noted with concern the continued aggressive movement in inflation, even after the rate hike at its meeting in May and July. The policy committee expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery, Emefiele said.
With the benchmark rate adjusted, the committee retains an asymmetric corridor at +100/-700 basis points around the MPR and the liquidity ratio is kept at 30% as CBN renewed its aggressive campaign against the rising inflation.
READ: Central Bank of Nigeria Hikes Interest Rate to 13%
Although, the latest GDP report showed that Nigeria’s economy grew by 3.54% in the second quarter of 2022, however, the rising inflation (which accelerated to 20.52% in August 2022) remains a major threat to economic output.
PAC Capital said hiking the policy rate is expected to ease inflation pressure and narrow the negative real interest rate thereby attracting forex inflow to support the ailing naira.
“While we expect the decision of the CBN to raise the key rate and reduce the systemic liquidity to be potent in the medium term; we believe that the country’s fiscal authority must continue to pursue growth-oriented policies to boost local productivity”, analysts said.
On the financial instruments, analysts said they expect the yields on bonds, treasury bills and commercial papers to increase in the primary and secondary markets. Hence, investors are expected to rebalance their portfolios by migrating from the stock market to the fixed income market.
#MPC Hikes Interest Rate to 15.5% to Fight Inflation
