The much anticipated Monetary Policy Committee meeting was held in Abuja, the nation’s capital, on Tuesday. Following the MPC meeting, the Central Bank of Nigeria (CBN), announced that the Monetary Policy Rate (MPR), which measures interest rate, has been raised to 15.5 percent from 14 percent.
The MPR was raised by 150 basis points from 14 percent as the financial regulator seeks to tame rising inflation that currently stands at 20.52 percent.
The asymmetric corridor of +100/-700 basis points around the MPR was retained but the Cash Reserve Ratio (CRR) was raised to a minimum of 32.5 percent. The Liquidity Ratio was also retained at 30 percent.
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CBN Governor, Godwin Emefiele, said on Tuesday that the decision to raise the interest rate has come from the majority of the MPC members.
“The committee voted unanimously to raise the MPR…The MPC voted to raise the MPR to 15.5, retain the asymmetric corridor at +100 -700 basis points around the MPR. Increase the Cash Reserve Ratio (CRR) to a minimum of 32.5% and retain liquidity ratio at 30%,” he said.
Emefiele explained that the decision was informed by the members’ deliberation on the impact of the widening margin between the current policy rate of 14 percent and the inflation rate of 20.52 percent.
“At this meeting, the option of reducing the policy rate was not considered as this would be gravely detrimental to reigning in inflation. The committee thus agreed unanimously to raise the policy rate to narrow the interest rate gap and reign in inflation. The committee thus voted unanimously to raise the MPR.
“10 members voted to raise the MPR by 150 basis points, one (voted to raise it) by 100 basis points and one by 50 basis points. 10 members voted to increase CRR (Cash Reserve Ratio) by 500 basis points, while two members voted to increase it by 750 basis points,” he said.
However, the MPR, which is the highest in 20 years, has raised some concern. The concern stems from the impact the new interest rate will have on the entities under the CBN debt list. The CBN has lent about N20 trillion to the federal government and about N10 trillion to selected entities.
Experts believe that raising the interest rate to 15 percent on all the loans will severely impact local production.
“No SME producing locally can survive with 15%+ interest rates,” Kalu Aja, a financial expert wrote.
The central bank had in its last MPC meeting, increased the interest rate from 11.5% to 14%. But the decision failed to tame the surging inflation rate, which rose from 19.6 percent in July by 0.92 basis points to 20.52% in August, the highest in 17 years.
Forex scarcity has been fingered as the major cause of the rising inflation, which the CBN’s policies, including schemes and intervention programmes, have failed to mitigate.