The Central Bank of Nigeria (CBN) has once again raised the interest rate in a push to contain the pressure rising inflation has put on the naira.
The benchmark lending rate was raised to 18 percent on Tuesday following the apex bank’s Monetary Policy Committee (MPC) meeting, which was held in Abuja, beginning on Monday.
The CBN governor Godwin Emefiele said after the meeting that the committee voted to keep the asymmetric corridor at +100 and -500 basis points around the Monetary Policy Rate (MPR). In addition, the MPC voted to keep the Cash Reserve Ratio (CRR) at 32.5 percent, as well as the Liquidity Ratio at 30 percent.
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The CRR is the share of a bank’s total customer deposit that must be kept with the central bank, while the bank’s liquidity ratio is the proportion of deposits and other assets that must be maintained to enable the banks to meet their short-term obligations.
This marks the sixth consecutive time the CBN is raising the MPR, a decision it said has significantly helped to tame inflation. The MPC raised its benchmark lending rate from 16.5 percent to 17.5 in January.
The 18 percent raise comes amidst biting effects of the naira redesign policy, introduced by the CBN in October last year.
The policy implementation resulted in a cash crunch that stifled economic activities across the country, accelerating inflation. A February report by the Nigerian Bureau of Statistics (NBS) said that inflation rose by 0.09 percent to reach 21.91 percent from 21.82 in January.
Emefiele said Tuesday the measures taken by the CBN is paying off, and would be sustained to keep inflationary pressure down.
“We believe that as we continue this process that inflation will eventually begin to trend downwards.
“Whether we like it or not, between now and May, or the end of the administration, we will expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation, so we are not optimistic that prices will continue to come down because of these measures but we feel we need to continue to tighten,” he said.
The CBN governor said the financial soundness indicators show that Nigerian banks remain resilient, adding that the Prudential Guidelines of the CBN have insulated Nigerian banks from the current financial crisis.
He assured customers of improved online banking services; says eNaira has emerged as the electronic channel of choice with an upsurge in wallets creation.
However, economists have expressed worry that raising interest rates will further hurt the economy that is still grappling with the negative effects of other economic policies made by the CBN. Small and Medium Enterprises (SMEs) are said to be the most vulnerable.