For the third time in a row, the CBN raises its key rate to 15.5%


By Kadiri Abdulrahman

The CBN’s Monetary Policy Committee (MPC) on Tuesday raised the monetary policy rate (MPR) from 14 percent to 15.5 percent to keep inflation under control.

The committee had increased the MPR by a total of 250 basis points in its last two meetings.

The MPR is the base interest rate in an economy; all other interest rates used in this economy are based on it.

CBN Governor Mr. Godwin Emefiele announced the new rate after the MPC’s bi-monthly meeting in September in Abuja.

The News Agency of Nigeria (NAN) reports that this is the third consecutive hike in the MPR, the country’s financial market benchmark interest rate in 2022.

The MPC also raised the cash reserve ratio from 27.5% to 32.5%, while keeping other metrics constant.

The asymmetric corridor therefore remains at +100/-700 basis points around the MPR, and the liquidity ratio remains at 30%.

The asymmetric interest rate corridor is a new tool developed to increase the flexibility of monetary policy.

It offers the ability to react quickly to external financial shocks or risk sentiment through active management of daily open market operations.

“The MPC noted with concern the continuation of the aggressive move in inflation, even after the rate hike at its May and July meeting.

“He expressed his unwavering determination to restore price stability while providing the support needed to strengthen the fragile recovery,” Emefiele said.

Some pundits had previously predicted that the CBN would hike rates to curb inflation.

Professor Umhe Uwaleke, an economist, had said that the MPC would increase the MPR again, by at least 50 basis points.

Uwaleke, a capital market professor at Nasarawa State University, said his projection was informed by rising inflation.

“In addition to inflationary pressures and the need to contain them, the MPC would take into account current global monetary developments such as the hike in policy rates by central banks in developed countries.

“For example, the US Federal Reserve recently raised the benchmark rate by 75 basis points, while the Bank of England increased by 50 basis points,” he said.

Uwaleke said monetary tightening by the US and UK central banks continued to trigger capital outflows from Nigeria with negative exchange rate implications.

“The MPC would also consider this as justification to increase the MPR,” he said.

He, however, urged the MPC to keep prevailing rates constant as the tightening may not rein in the inflationary trend.

“Anyway, if I was a member of the MPC, I would vote for a full post. In other words, I would advise maintaining key rates.

“This is because the main drivers of inflation in Nigeria today are related to cost pressures rather than demand.

“Furthermore, policy tightening may not really contain inflationary pressures that stem more from the high cost of energy and the negative impact of insecurity on food production.

“Any rate hike right now will hurt output growth because of the higher cost of lending to SMEs,” he said.

Dr. Tope Fasua, another economist, urged the MPC to keep rates in place because past rate hikes had failed to bring inflation under control.

“I expect them to raise rates further. My advice to the MPC would be that they hold rates.

“We have raised rates by 250 basis points in the last two meetings, but inflation has risen again.

“This means that our own inflation is not closely tied to interest rates and may come down in time.

“Ours is a bit of a carryover from the COVID-19 era of production shutdown and imported inflation, as our economy currently depends on foreign economies fighting inflation,” he said. Explain.

According to Fasua, raising rates further will only be a continuation of the punishment for local industries that borrow locally and struggle to reach previous production levels after Covid-19.

“Banks are always quick to raise lending rates anyway. The CBN had to force them recently to raise savings rates.

“Their margins are always so high, so the committee and the CBN have to be careful about raising rates to infinity,” Fasua said. (NOPE)


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