The Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) by 400 basis points from 18.75 per cent to 22.75 per cent.

The CBN Governor, Yemi Cardoso, who chairs the Monetary Policy Committee (MPC), announced the committee’s decisions on Tuesday, February 27, 2024, after the meeting in Abuja.

Cardoso said that the asymmetric corridor around the MPR was adjusted to +100 – 700 basis points from + 100 -300 basis points.

He said the Cash Reserve Ratio (CRR) was increased from 32.5 per cent to 45 per cent, while the Liquidity Ratio was retained at 30 per cent.

According to him, the committee decisions centred around the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.

“Members are concerned about the persistent rise in the level of inflation and emphasised the committee’s commitment to reverse the trend as the balance of risk leans towards rising inflation.

“The committee, however, acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in environment of low and stable inflation,” he said.

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On why the MPC increased the interest rate, Cardoso said: “In the opinion of the Committee, the options available for decision was to either hold or hike the policy rate to offset the persisting inflationary pressure. Considering the option of a hold policy, the evidence revealed that previous policy rate hikes have slowed the rise in inflationary pressure but not to a desirable extent.

“Members considered various scenarios of hold and hike, and concluded that, inflation could become more persistent in the medium-term and thus pose more regulatory challenges if not effectively anchored. The balance of the argument thus leaned convincingly in favour of a significant policy rate hike to drive down inflation substantially.”

The CBN Governor stated that the MPC discussed the developments in the foreign exchange market.

He added: “The MPC also deliberated extensively on various distortions in the foreign exchange market including the activities of speculators, putting upward pressure on the exchange rate with high pass-through to inflation.

“Members were, however, convinced that the ongoing reforms in the foreign exchange market will yield the desired outcome in the short to medium term. Some of these reforms include: the unification of the foreign exchange market; promotion of a willing buyer willing seller market; removal of all limits on margins for IMTO remittances; introduction of a two-way quote system and the broad reforms in the BDC segment of the market to restore stability, enhance transparency, boost supply

The Star