The Central Bank of Nigeria (CBN) has increased the interest rate by 150 basis points, raising it from 24.75 percent to 26.25 percent. This decision was made following a two-day meeting of the bank’s Monetary Policy Committee (MPC), which concluded that a rate hike was necessary to control the country's soaring inflation, which stood at 33.69% in April 2024.
CBN Governor Yemi Cardoso, who also serves as the MPC chairman, announced the decision on Tuesday after the MPC's 295th meeting on May 20th and 21st. The meeting reviewed recent economic and financial developments and assessed risks to the economic outlook.
“The MPC has decided to raise the Monetary Policy Rate (MPR) by 150 basis points to 26.25 percent from 24.75 percent,” Cardoso stated.
Despite the rate increase, the Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) was maintained at 45 percent. The MPC also kept the asymmetric corridor around the MPR at +100 and -300 basis points and retained the liquidity ratio at 30 percent.
Cardoso acknowledged the rising inflation levels in the country, emphasizing that the primary focus of the MPC meeting was to achieve price stability using available tools to control inflation. He pointed out that inflation pressures are mainly driven by food inflation, which is influenced by rising transportation costs, infrastructure and security challenges, and exchange rate issues.
Monday's announcement comes amid skyrocketing commodity prices and a rising cost of living. These challenges have been exacerbated by the removal of the fuel subsidy last year and the floating of the naira, leading to historic inflation levels in Nigeria.
Despite protests and pressure from labor unions, President Bola Tinubu has repeatedly urged patience, expressing confidence that his government’s reforms will eventually be beneficial.
To combat the declining value of the naira, the CBN has also recently focused on regulating the operations of cryptocurrency exchange Binance.
