The Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele has said that the current hike in the Monetary Policy Rate (MPR) by 150 basis points was voted to calm the increasing rate of inflation in the country.
Rising from its Monetary Policy Committee (MPC) meeting Tuesday in Abuja, the members voted to increase interest rate from 14 percent to 15.5 percent.
Emefiele said, “the members deliberated on the impact of the widening margin between the current policy rate of 14 per cent and the inflation rate of 20.52 per cent.
“At this Meeting, the option to loosen the policy rate was not considered as this would be gravely detrimental to reining-in inflation.
“The Committee thus, agreed unanimously to raise the policy rate to narrow the negative real interest rate gap and rein-in inflation.
“The Committee thus voted unanimously to raise the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR). Ten members voted to raise the MPR by 150 basis points, one member by 100 basis points, and another member by 50 basis points. Ten Members voted to increase the CRR by 500 basis points, while two Members voted to increase CRR by 750 basis points.
“In summary, the MPC voted to:
I. Raise the MPR to 15.5 per cent; II. Retain the asymmetric corridor of +100/-700 basis points around the MPR; III. Increase the CRR to a minimum of 32.5 per cent; and
IV. Retain the Liquidity Ratio at 30.0 per cent”, he said.
Speaking on the development, the Professor of Capital Market at the Nasarawa State University, Uche Uwaleke said, the decision by the MPC to further tighten monetary policy was justified by the need to tame inflationary and forex pressures and possibly stem capital outflows.
Prof. Uwaleke who is also the President of the Association of Capital Market Academics of Nigeria (ACMAN) however, pointed out that the hike in MPR would lead to spike in cost of capital for firms, cost of borrowing by the government, stock market performance and output growth in general.
“I think the decision by the MPC to further tighten monetary policy is justified by the need to tame inflationary and forex pressures and possibly stem capital outflows on account of the hike in policy rates in developed economies especially in the US and UK. The primary mandate of the CBN is to maintain price stability.
“But, it has grave implications for cost of capital for firms, cost of borrowing by the government, stock market performance and output growth in general. It may also affect the asset quality of banks as they reprice their loans in response to the hike in MPR”, he said.