In another move to combat Nigeria’s rising inflation, the Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) to 27.50% from 27.25%. The decision, announced by Governor Yemi Cardoso after the Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, marks the sixth interest rate hike this year.
The MPC’s unanimous decision to raise the rate by 25 basis points reflects the apex bank’s determination to address persistent inflationary pressures.
“The Committee was unanimous in its agreement to raise the monetary policy rate by 25 basis points to 27.50 percent,” Cardoso stated.
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The CBN also retained key monetary tools: the Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks, the Liquidity Ratio (LR) at 30%, and the Asymmetric Corridor at +500/-100 basis points around the MPR.
The CBN’s move follows troubling inflation data released by the National Bureau of Statistics (NBS). In October 2024, the inflation rate surged to 33.88%, up from 32.7% in September, marking a 1.18 percentage point month-on-month increase. The NBS attributed the spike to rising transportation costs and food prices.
Year-on-year, the inflation rate was 6.55 percentage points higher than October 2023’s 27.33%, highlighting the prolonged economic strain.
“The considerations of the meeting were held on the backdrop of renewed inflationary pressures as the headline food and core measures rose year on year in October 2024. Members therefore agreed unanimously to remain focused on addressing price developments,” Cardoso explained.
Despite the inflation surge, Nigeria’s economy has shown signs of resilience. Recent GDP figures revealed a modest 3.46% growth in the third quarter of 2024, driven by gains in the non-oil sector. These improvements provided a degree of optimism, influencing the CBN’s decision to maintain its inflation-focused monetary tightening strategy.
Business Leaders Sound the Alarm
However, the central bank’s aggressive rate hikes have drawn criticism from business leaders and economists, who argue that the policy may have unintended consequences.
Prominent business leaders have expressed concern that the continuous hikes in interest rates will squeeze investments and stall economic growth. By increasing borrowing costs, the higher MPR discourages businesses from accessing credit, potentially slowing expansion plans, job creation, and productivity gains.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), cautioned that increasing the rate could stifle economic activity.
“Interest rates have gone to 30% and above. Now how many sectors can fund their business with the current level of interest rates? Can the manufacturing sector support manufacturing investment?” Yusuf asked.
“Banks are advising companies that they have, as a result of the last MPC. Interest rates have been revised to 38%. Of course, there is no way the financial sector can support manufacturing, under that kind of framework. The same thing in agriculture, how can you, as a farmer, go and borrow money at 30%? Same with the real estate, which is critical for any economy.”
He added that the tight monetary policy may have limited success in addressing inflation, given that much of the current inflationary pressure stems from structural issues, such as food supply constraints and high energy costs.
Cardoso defended the MPC’s decision, emphasizing its commitment to price stability as a prerequisite for sustainable growth.
“Members remain focused on ensuring a sustainable path for the economy,” he said, underscoring the importance of curbing inflation to create an environment conducive to economic recovery.
While acknowledging the risks associated with higher borrowing costs, the CBN believes that controlling inflation will eventually restore investor confidence and stabilize the economy.