The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), in continuation of its hawkish stance, on Tuesday raised the Monetary Policy Rate (MPR), the country’s benchmark interest rate, to 27.25 per cent, up from 26.75 per cent.
CBN governor, Olayemi Cardoso, announced the decision at the end of the 297th MPC meeting at the nation’s capital, Abuja.
“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,” Cardoso 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 CBN decision has not gone down well with many analysts and stakeholders, including the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA).
National President of NACCIMA, Dele Kelvin Oye Esq., said in a statement that the decision burdens businesses with higher loan costs, exacerbating their struggles and failing to curb inflation or stabilize the naira.
“As President of NACCIMA, I express concern over the CBN’s recent monetary policy rate hike to 27.25%. This decision burdens businesses with higher loan costs, exacerbating their struggles and failing to curb inflation or stabilize the naira,” Oye said.
“We urge the CBN to engage with stakeholders for a collaborative approach, considering alternatives like targeted sector support, deficit reduction, and promoting local production.
“A reassessment of strategies is essential to ensure effective economic management and sustainable growth in Nigeria. Dialogue and innovative solutions are crucial for repositioning our economy,” he said.
Oye further noted that the 50bps increase is not a material change.
“The narrative is actually the trend upwards. This is a confirmation that the previous high interest rate has not worked,” he said.
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 of 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 the MPC meeting.
