The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has voted to raise interest rate to 17.5 percent from the previous rate of 16.5 percent held in November 2022.
MPC’s decision to raise the benchmark interest rate by 100 basis points was announced by the apex bank’s Governor, Mr Godwin Emefiele while briefing newsmen shortly after the meeting, Tuesday January 24, 2022 in Abuja.
The current hike which was the highest in more than two years was meant to bring to heel the rising inflation.
Giving the Committee’s decision, Emefiele said, One (1) member voted to increase the Monetary Policy Rate (MPR) by 150 basis points, Four (4) members by 50 basis points, and Seven (7) members by 100 basis points.
In summary, he said, the MPC voted to: Raise the MPR by 100 basis points to 17.5 per cent; Retain the asymmetric corridor of +100/-700 basis points around the MPR; Retain the CRR at 32.5 per cent; and Retain the Liquidity Ratio at 30 per cent.
He said, “although the MPC was delighted that inflation (year-on-year) had started to moderate, it was not convinced that a marginal 13 basis points dip in inflation was enough to begin to celebrate.
“The Committee was therefore, not of the opinion that a hold or loosen option was desirable. This is because loosening under a double-digit inflationary condition will be tantamount to an immediate reversal of the expected further downward trend in inflation.
“Committee also felt that loosening will negate the objective of dampening the pent-up aggregate demand that fueled the rise in inflation post-COVID-19 pandemic.
“As for hold, the Committee was reluctant in considering this option because a hold option would signal MPC’s quick adjustment of its policy stance due to a one-time, marginal decline in inflation, suggesting a weak confidence in its previous policy stance at taming inflation.
The MPC was therefore unanimous in its position to continue to tighten”, he said.
Emefiele said, “the MPC noted the continued upward risk to price development characterized by the forthcoming 2023 general elections; perennial scarcity of PMS; continued rise in other energy prices; exchange rate pressure; as well as rising insecurity.
“Members, however, noted that the current naira redesign and cash withdrawal limit policies are huge moderating factors to price development as CurrencyOutside-Banks is expected to continue to moderate beyond the implementation stage of these policies.
“The MPC was of the view that although the inflation rate moderated marginally in December, the economy remained confronted with the risk of high inflation with adverse consequences on the general standard of living. The Committee, therefore, decided to sustain the current stance of policy at this point in time to further rein in inflation”, he said.