The Monetary Policy Committee of the Central Bank of Nigeria voted unanimously on Wednesday to raise its monetary policy interest rates by 50 basis points to 18.5 percent.
CBN Governor Godwin Emefile made the disclosure while reading the minutes of the third MPC meeting of the year on Wednesday.
Addressing reporters at the end of the two-day meeting in Abuja, Emefile said the committee voted to place the asymmetric corridor around the MPR at +100 and -700 basis points.
He also disclosed that the MPC voted to keep the cash reserve ratio at 32.5 per cent, while the liquidity ratio was retained at 30 per cent.
“Ten members voted to increase the MPR by 15 basis points and one member by 25 basis points, and all members voted to keep all parameters constant,” Emefile said.
CRR is the portion of a bank’s total customer deposits that must be kept with the central bank in the form of liquid cash, while a bank’s liquidity ratio is the proportion of deposits and other assets that it must maintain to meet short-term obligations.
According to the CBN governor, the MPC saw the continued rise in inflation as “the biggest challenge facing macroeconomic stability in Nigeria”.
While justifying the rising inflation rate, the MPC attributed high energy costs and challenges around the supply chain, which are beyond the reach of the CBN.
However, he added that the hike in policy rates has kept inflation from rising around 8 per cent in the past one year.
“Therefore, the MPC chose to tighten, however modestly, to signal that the current policy stance is moderating rising inflation,” Emefile said.
The committee highlighted that the aggressive rate hike was helpful in containing inflation, which prevented it from reaching 32 per cent as against the record 22.22 per cent in April.
“The current trend in price developments will continue to be monitored by the Bank with greater cooperation with the fiscal authority to address the drivers of inflation,” he added.
When asked whether the CBN will continue to raise the MPR as long as the inflationary trend continues, Emefiele said, “I said so. I am not going to assure anyone that what we are doing We will not do that because we are seeing the results of what we are doing. We have also seen the impact of MPR hike on headline inflation.
Analysts in the country predicted that the CBN and MPC could raise lending rates at the end of the monetary policy committee.
The inflation rate, which is running at 22.22 per cent till April 2023, had turned upward in the last few months, and the situation has continued to increase the MPR to MPC.
The apex bank had increased the MPR from 11.5 per cent last year to 18 per cent in March this year.
Within a period of one year, from May 2022 to May 2023, Nigeria’s interest rate increased by about 800 basis points.
It is expected that businesses operating in Nigeria will face tough times as the cost of borrowing continues to rise.
Lending to the private sector has slowed since the CBN launched an aggressive rate hike in May 2022 to tame rising inflation.
The CBN boss went on to state that the rate was having the expected effect on credit, although the MPC was not enthused that credit was falling, necessary to tame inflation.
“Around May 2022, the credit was about N1.4tn, but as we speak today, the credit is about N600bn. When you raise rates, you are trying to limit credit.
“We are seeing it happen. And I must admit here that we are not happy that rate hikes are constraining credit, but we have to do our part because inflation is at the heart of what we’re saying to deal with.
“Because if you don’t raise the rate to constrain credit, what it would mean is it would create more inflationary pressures and create more problems for us,” Emefile explained.
While Emefile said he could not promise that the CBN would not raise rates again if inflation continues to rise, the apex bank chief revealed that the financial regulator’s response would not be aggressive.
The CBN interest rate at 18.5 percent represents its highest level in 22 years.
production is dangerously low
The CBN governor further lamented the low oil production in the country, which he described as very dangerous for the economy.
He said, “We are trying to diversify as much as possible or be less dependent on crude oil income and that is how we brought RT200. They are still important, but we are not going to hide the fact Unfortunately, that sector has not significantly increased foreign reserve accretion in more than two years.
“We all know that oil production last year was less than one million barrels a day, and it is showing that even the newspapers published that the production is still 1.1 million barrels a day. This production for Nigeria And exports are at a dangerously low level given the OPEC quota of 1.8 million barrels per day.
“If we are facing those kinds of shortcomings, then we know that NNPC is facing its own challenges but I think it is time for all of us to roll up our sleeves and join forces with NNPC on board. Climb up and say what’s causing it, we need to be able to effectively increase production to 1.8 million barrels per day, plus maybe 2 or 2.3 million barrels per day of condensate.