To combat rising inflation, the Central Bank of Nigeria’s Monetary Policy Committee raised the benchmark interest rate from 14 to 15.5 percent.
This is a 150-basis-point increase from the 14% rate approved at the previous MPC meeting in July.
The CBN Governor, Godwin Emefiele, told journalists at the end of the MPC meeting on Tuesday that 10 members voted in favor of the rate hike.
In August, inflation surpassed 20%, fueling speculation that the CBN would raise interest rates further.
The cash reserve ratio, which is the percentage of a bank’s total customer deposits held as cash at the central bank, was also increased to 32.5 percent from 27.5 percent. It did, however, keep the liquidity.
“Our research study at the Central Bank has shown us that once inflation trends above 13%, it will retard growth,” Emefiele continued. In Nigeria, inflation has risen dramatically in the last four months.
“It’s difficult for us, for this MPC, with all of the data available, with all of the research that’s been done; it’s difficult for us not to go in the very aggressive direction we decided to go today.”
“What we have done at this meeting is to say that we will raise CRR by 5% to a minimum of 32.5 percent, and that we will raise MPR by 150 basis points.” That means we increased MPR by more than 400 basis points in the last four months.
“However, let us not forget that Nigeria’s inflation rate, at 20.5 percent, is still higher than our policy rate, implying that we are still in the realm of negative interest rates, which is still harmful to the economy.”