The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the benchmark interest rate, the Prime Rate (MPR), from 26.75% to 27.25%.
CBN Governor Olayemi Cardoso announced the 50 basis points increase at a press conference after the committee’s 297th meeting in Abuja on Tuesday.
Cardoso said the increase is aimed at further containing inflation.
On September 16, the National Bureau of Statistics (NBS) announced that Nigeria’s inflation rate fell to 32.15% in August, the second decline in 2024.
The CBN Governor also said the committee is maintaining an asymmetric corridor around the MPR at +500 basis points and -100 basis points. He said the committee also increased the cash reserve ratio (CRR) from 45 percent to 50 percent while maintaining the liquidity ratio at 30 percent.
Cardoso said the MPC agreed to intensify monitoring of future releases considering their impact on price trends.
He also said the committee noted the relative stability and convergence of the exchange rate across market segments as a result of the central bank’s tight monetary policy.
The CBN governor said this would boost confidence and enable economic players to make medium to long-term plans.
“However, the committee agreed that more is needed to achieve the bank’s mandate of price stability,” he said. “The MPC noted that while headline inflation is trending downwards due to the containment of food inflation, core inflation remains elevated, mainly due to rising energy prices.
This upward trend is of great concern to member states as it is a clear indication of continuing inflationary pressures. Members therefore reiterated the need to work closely with the Ministry of Finance to address the current upward pressure of energy prices.
“The MPC noted that money supply continues to increase and recognised the need to limit excess liquidity in the system and manage pressure on foreign exchange demand.”
“FG committed to not relying on any means or methods of financing”
Cardoso said the MPC was concerned about the fiscal deficit.
But he said the Federal Government committed to not relying on any monetary instruments. “The committee members also expressed concern about the widening fiscal deficit but acknowledged the Treasury’s commitment to refrain from any form of monetary lending,” he said.
“Gasoline supply from Dangote refinery will reduce transportation costs”
Cardoso also commended the Federal Government’s efforts to stabilize food prices.
He said the committee is optimistic that “offtake of refined petroleum products from Dangote refinery will reduce transportation costs and significantly reduce food price pressures in the short to medium term.”
He said “this will also reduce foreign exchange demand for imports of refined petroleum products, which is expected to have a positive impact on foreign exchange reserves and improve the overall balance of payments.”
Cardoso also commended the Federal Government of Nigeria’s continued efforts to make up for supply shortfalls through the duty-free food import window.
The CBN Governor further noted that the MPC “finds that real policy interest rates remain negative even after the recent moderation in headline inflation.” “We must continue to strive to maintain positive real interest rates in order to attract investment into the economy,” he said.
This, Cardoso said, would make the economy more competitive with foreign capital, thereby strengthening the exchange rate.