The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) at the end of its 297th MPC meeting at the nation’s capital, Abuja, continued its hawkish stance as it raised the Monetary Policy Rate (MPR), the country’s benchmark interest rate, to 27.25 percent, up from 26.75 percent. This amounts to an increase of 50 basis points.
“The Monetary Policy Committee (MPC) voted to raise Monetary Policy Rate (MPR) by 50 basis points from 26.75% to 27.25%; raise Cash Reserve Ratio (CRR) by 50 basis points from 45% to 50% for Deposit Money Banks (DMBs) and from 14% to 16% for Merchant Banks. The committee retains the Liquidity Ratio (LR) at 30% and Asymmetric Corridor at +500/-100 basis points around the MPR,” Olayemi Cardoso, CBN governor, said.
He also assured the banking industry is safe and sound, emphasising that “the banking industry remains safe, sound, and stable” adding that “to attract investments into the economy, efforts must be sustained to achieve positive real interest rates.”
The further hike in MPR was against many of the predictions by analysts who had anticipated that the decline in inflation for two consecutive months, July and August 2024, would impress on the apex banking authority to maintain a hold on the major rates in the country.
Nigeria’s headline inflation fell to 32.15 percent in August, down from 33.40 percent in July. Food inflation equally fell to 37.52 percent in August from 39.53 percent in July. The highest these two inflation rates attained were 34.19 percent and 40.87 percent respectively in June 2024.
“Therefore, we opine that a rate cut would be premature. On the flip side, additional hikes should be off-the-card due to cost to consumption and production activities, including government borrowings. On the back of these, we forecast a hold decision next week, to allow MPC evaluate the evolution of macroeconomic dynamics and measure risks appropriately,” Afrinvest said in a note to investors ahead of this week’s MPC meeting.
Meanwhile, Nigerians have started to react to the CBN decisions. While some agreed the target is inflation tapering, the resultant effects will be higher borrowing costs for households and businesses.
“These measures will likely lead to higher loan rates for businesses and individuals, potentially slowing economic growth through reduced spending and investment. The liquidity ratio remains at 30%, suggesting no further liquidity squeeze beyond the CRR hike, while the asymmetric corridor around the MPR will encourage cautious lending by banks. Overall, these policies could stabilize the financial system but at the risk of economic slowdown due to tightened credit conditions and increased costs for borrowers,” Dangbana Manager said.
“Interest on loans with this decision has increased. If your return on investment cannot accommodate the interest you have to pay, please don’t go for any bank loan,” Asabi warned.
