The Central Bank of Nigeria’s Monetary Policy Committee has increased the benchmark interest rate by 50 basis points to 26.75 per cent from its previous 26.25 per cent.
The Governor of the CBN, Yemi Cardoso, disclosed this at the press briefing on Tuesday following apex bank’s 296th MPC meeting.
The MPC also pegged the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45 per cent while that of merchant banks was pegged at 14 per cent.
The CBN governor noted that this is a decisive move to address the persistent inflationary pressures affecting the Nigerian economy.
Cardoso announced several other significant monetary policy adjustments.
Key Policy Adjustments
- Monetary Policy Rate (MPR) Increase: The MPC resolved to raise the MPR by 50 basis points, bringing it to 26.75 per cent from the previous 26.25 per cent. This decision underscores the Committee’s commitment to curbing inflation and stabilising the economy.
- Asymmetric Corridor Adjustment: The asymmetric corridor around the MPR has been adjusted from +100/-300 basis points to +500/-100 basis points. This change aims to provide more flexibility and control over the interest rate environment.
- Cash Reserve Ratio (CRR): The CRR for deposit money banks remains unchanged at 45 per cent, while for merchant banks, it is retained at 14 per cent.
- Liquidity Ratio: The liquidity ratio stays at 30 per cent, ensuring that banks maintain adequate liquidity to meet their financial obligations.
Inflation and Economic Stability
The MPC’s decisions reflect its awareness of the rising prices impacting households and businesses. Despite a recent increase in headline inflation in June 2024, the Committee remains optimistic that prices will moderate in the near term.
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This optimism, as Cardoso noted, is based on the continued traction of monetary policy measures and recent fiscal actions aimed at addressing food inflation.
Addressing Food Inflation
A key focus of the MPC’s deliberations was the persistence of food inflation, which undermines overall price stability. The Committee highlighted several contributing factors, including:
- Rising food and energy costs.
- Insecurity in food-producing areas.
- High costs of farm produce.
- Activities of middlemen who hoard and export farm produce, exacerbating domestic supply deficits.
To address these issues, the MPC emphasised the importance of collaboration with the fiscal authorities.
Cardoso noted that the MPC supports recent government measures, such as the 150-day duty-free import window for essential food commodities, which are expected to help moderate domestic food prices without causing further inflation.
Foreign Exchange Market and Banking Sector Resilience
The MPC noted improvements in the foreign exchange market, including a narrowing spread between various segments and increased market efficiency.
These developments, the CBN governor noted, reduce opportunities for arbitrage and speculation. Additionally, the increase in external reserves to $37.05 billion as of July 18, 2024, further strengthens confidence in a stable exchange rate.
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The Committee also commended the resilience of the banking sector, reflected in improvements in key financial soundness indicators. Ongoing monitoring and the recapitalisation exercise are crucial to maintaining this stability.
Domestic and Global Economic Outlook
The National Bureau of Statistics reported a slight increase in domestic headline inflation to 34.19 per cent in June 2024, driven by rising food and coal prices. However, real GDP growth remained positive, with a year-on-year increase of 2.98 per cent in the first quarter of 2024.
Staff forecasts suggest a growth rate of 3.38 per cent for 2024, while the IMF projects 3.1% per cent.
On the global front, the IMF forecasts economic growth of 3.2 per cent and 3.3 per cent for 2024 and 2025, respectively.
Despite ongoing geopolitical tensions and tight global financial conditions, global inflation is expected to decelerate marginally but may remain above long-term objectives for advanced economies.
The MPC reaffirmed its commitment to closely monitor global and domestic economic developments to guide its policies and ensure that inflation expectations are adequately anchored.
The next MPC meeting is scheduled for September 23-24, 2024.
