Nigeria: CBN Raises Interest Rate to 27.5% Amid Inflation Concerns

The Central Bank of Nigeria (CBN) has increased its Monetary Policy Rate (MPR) by 25 basis points to 27.5%, up from 27.25%. The announcement was made by the CBN Governor, Mr. Olayemi Cardoso, following the conclusion of the 298th Monetary Policy Committee (MPC) meeting held in Abuja.

Policy Highlights

Governor Cardoso outlined the MPC’s unanimous decision to further tighten monetary policy, stating:

• Monetary Policy Rate (MPR): Raised to 27.5%.
• Asymmetric Corridor: Retained at +500/-100 basis points.
• Cash Reserve Ratio (CRR): Maintained at 50% for Deposit Money Banks and 16% for Merchant Banks.
• Liquidity Ratio: Remained unchanged at 30%.

Reasons for the Interest Rate Hike

The decision to increase the interest rate was driven by persistent inflationary pressures. According to the National Bureau of Statistics (NBS), headline, food, and core inflation all showed year-on-year and month-on-month increases in recent reports.

“The committee was particularly concerned that all three measures inched up on a month-to-month basis, suggesting persistent price pressures with adverse impacts on income and welfare,” Governor Cardoso explained.

Positive Developments in the Economy

Despite inflation concerns, the CBN highlighted positive outcomes from its policies:

• External Reserves: Increased to $40.88 billion as of November 26, 2024, up from $40.06 billion at the end of October.
• External Sector Performance: Improvement in the Current Account surplus, enhanced remittances, and capital inflows.
• Currency Stability: The naira has maintained stability since June, which is seen as a critical factor for economic growth.

“These developments suggest that key policy measures by both monetary and fiscal authorities are yielding the desired outcomes,” Cardoso said.

Addressing Foreign Exchange Market Challenges

The MPC acknowledged continued pressure on the exchange rate due to high demand in the market and urged the CBN to explore measures to boost liquidity.

Future Outlook

Governor Cardoso expressed optimism that policy impacts would become more evident by the first quarter of 2025.

Key Targets and Initiatives

1. FATF Grey List Removal:
   The CBN is intensifying efforts to ensure Nigeria exits the Financial Action Task Force (FATF) Grey List by the second quarter of 2025. This move is expected to enhance capital inflows and boost confidence in the Nigerian economy.
2. Cash Shortages Mitigation:
   With the festive season approaching, the CBN is addressing cash shortages by ensuring Deposit Money Banks have sufficient cash reserves. Spot checks and cash buffers are being deployed to prevent undue hardship for citizens.

“We are ensuring that all Deposit Money Banks get the cash they require and that there are no gaps,” Cardoso assured, adding that new initiatives to address cash shortages will be announced soon.

The CBN’s commitment to tackling inflation, stabilizing the naira, and fostering economic resilience reflects its broader strategy to achieve sustainable growth and improved welfare for Nigerians.