The Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele has advanced reasons why the Monetary Policy Committee (MPC) of the bank voted unanimously to raise the Monetary Policy Rate (MPR) from 17.5 percent to 18.0 percent.
MPC’s decision to raise the benchmark interest rate by 50 basis points was announced by Mr Emefiele while briefing newsmen shortly after the meeting on Tuesday March 21, 2022 in Abuja.
Rising from the meeting, Emefiele said, the “Members resolved by a majority vote to raise the Monetary Policy Rate (MPR) by 50 basis points. In Summary, ten (10) members voted to raise the MPR by 50 basis points, one (1) member voted to raise the MPR by 25 basis points and one (1) member voted to hold the MPR.
“All members voted to keep all other parameters constant. The MPC, therefore, voted to: I. Raise the MPR by 50 basis points to 18.0 per cent; II. Retain the asymmetric corridor of +100/-700 basis points around the MPR; III. Retain the CRR at 32.5 per cent; and IV. Retain the Liquidity Ratio at 30 per cent”, he said.
The current hike which was the highest in more than two years was meant to bring to heel the rising global inflation and persistent interest rate hikes which led to the failure of Banks in US and Switzerland.
Emefiele said, the MPR was increased by 500 basis points in Nigeria, from 12.5 per cent in 2022 to 17.5 per cent in January 2023, the Financial Soundness Indicators (FSIs) in Nigeria shows that the Nigerian banking system remain resilient due largely to the stringent prudential guidelines put in place by the CBN which has resulted in a strong build-up of not only the Cash Reserve Ratio (CRR) in Nigeria, but also the Liquidity Ratio and capital Adequacy Ratio.
He said, in the light of these strong FSIs, MPC was comforted that its various decisions in increasing MPR have had moderate impact on inflation, given that the rate appears to have plateaued in Nigeria.
He said, “the MPC noted that while the continued rise in headline inflation remained a significant problem confronting the economy, other macroeconomic variables are moving in the right direction, despite observed headwinds.
“The Committee’s debate at this meeting, therefore, was whether to continue its
rate hike to further dampen the rising inflation trajectory or hold to observe
emerging development and allow for the impact of the last five rate hikes to
permeate the economy. Loosening, in the view of members, would gravely
undermine the gains achieved so far.
“The MPC observed the continued upward risk to price development around expectations on the removal of the PMS subsidy; rising prices of other energy
sources; continuing exchange rate pressure; and uncertain climatic conditions. These in the view of members, provides a compelling argument for an upward adjustment of the policy rate, albeit, less aggressively”, he added.