The Central Bank of Nigeria’s Monetary Policy Committee has jacked up benchmark interest to 13 per cent, 150 basis points above the previous rate.
It is the first change since September 2020 and the fist hike in six years.
The Governor of the Central Bank, Godwin Emefiele, made this known while reading the communique of the MPC’s 142nd meeting.
Mr Emefiele said the action was to tame the rising inflation rate in the country.
The CBN governor, however, said the rate on development finance loans will remain at 5 percent till 2023.
A 0.5 percentage points interest rate hike announced by the United States’ Federal Reserve earlier in the month reverberated around the globe, spurring other economies to hike rates.
The U.S. Fed raised its benchmark interest rate to a target rate range of between 0.75% and 1%, the largest hike in 22 years. The decision followed a 0.25 percentage point increase in March, the first increase since December 2018.
Subsequently, in the wake of the U.S’ decision, the Bank of England increased interest rates from 0.75% to 1% in order to tackle soaring inflation that is expected to rise above 10% in the coming months. The bank also warned that the cost-of living crisis could plunge the economy into recession in 2022.
The monetary policy committee (MPC) voted by a majority to raise its base rate, lifting the cost of borrowing to the highest level in 13 years.
Similarly, Gulf states whose currencies are tied to the dollar responded to the Fed with interest rate rises of their own.
Australia’s central bank also raised interest rates for the first time in more than a decade, following the lead of Asia-Pacific economies taking action to tame rising inflation. The Reserve Bank of Australia (RBA) raised the benchmark interest rate to 0.35 percent, up from a record low of 0.1 percent.
On its part, the Reserve Bank of India (RBI) raised the repo rate—at which it lends money to commercial banks, backed by with securities —by 40 basis points to 4.4%. The bank had reduced the rate to a record low of 4% during the Covid-19 pandemic.
Mr Emefiele explained that at the MPC meeting, six out of the 11 members of the committee voted to raise the key rate.
The committee also voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR, just as it maintained the Cash Reserved Ratio (CRR) at 27 per cent.
The committee consequently voted to retain all other parameters. He advised the various banks in the country and the Federal Government to redouble efforts in supporting monetary authority.
The CBN governor added that the sharp rise in inflation across both the advanced and emerging market economies has generated growing concerns among central banks across the world. He explained that the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels.
“Consequently, the major central banks such as the U.S. Fed, the Bank of England, European Central Bank, and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rate which may ultimately impact capital flows away from emerging market economies,” he said.
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