Again, CBN raises interest rate

The Central Bank of Nigeria has again raised its benchmark lending rate to 27.25 per cent from 26.75 per cent on Tuesday.

The apex bank’s monetary policy committee (MPC) said the decision was taken to ensure a continuous decline in inflation levels.

CBN Governor Olayemi Cardoso disclosed this while addressing journalists at the end of a two-day Monetary Policy Committee (MPC) meeting held in Abuja.

The benchmark rate is the standard interest rate set by central banks, used to guide lending rates and influence economic activity, inflation, and financial stability.

“Following a review of the upside risk to price development and the down road risk to the recovery of output growth, the committee opted to tighten policy further to safeguard the gains already accrued in moderating inflationary pressures,” Mr Cardoso said.

The central bank also adjusted the asymmetric corridor around the MPR from +100 to -300 basis points to +500 to -100 basis points.

Mr Cardoso said the committee voted to raise the Cash Reserve Ratio (CRR) to 50 per cent for commercial banks and adjust the CRR of merchant banks to 16 per cent.

The committee also voted to retain the liquidity ratio at 30 per cent.

Mr Cardoso said the committee acknowledged the ease in the inflation rate and the relative stability and convergence in the exchange rate across the various market segments resulting from the bank’s tight monetary policy stance.

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According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate fell to 32.15 per cent in August 2024, compared to 33.40 per cent in July, showing a reduction of 1.25 percentage points. This was the second month in a row that inflation had slowed, following a decline in the previous month.

The MPC noted the commitment of the fiscal authority not to resort to monetary financing through Ways and Means.

“Furthermore, members observed a strong correlation between fact releases and liquidity levels in the banking system, as well as its impact on the exchange rate, the committee, therefore, agreed to increase monitoring of future releases to address its effect on price developments,” he said.

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The MPC highlighted that the exchange rate has remained stable due to strict monetary policies, although there are ongoing concerns about high core inflation driven by rising energy prices.

It also noted that collaboration with the fiscal authority is necessary to tackle these inflationary pressures, along with increased monitoring of government spending to understand its effects on liquidity and the exchange rate.

The MPC acknowledged the government’s efforts to combat food inflation and supply shortages and expressed satisfaction with the stability of the banking sector.