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Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), announced that the Monetary Policy Committee (MPC) has increased the benchmark interest rate by 150 basis points, raising it to 26.25% from the previous 24.75%.
This decision was revealed during a press briefing following the 295th MPC meeting.
Additionally, the CBN maintained the Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) at 45% and kept the Asymmetric Corridor around the Monetary Policy Rate (MPR) at +100 and –300 basis points. The liquidity ratio for banks was also retained at 30%.
Governor Cardoso explained that this third consecutive interest rate hike in 2024 is part of the CBN’s ongoing efforts to moderate inflation, which reached 33.69% in April 2024, according to the National Bureau of Statistics (NBS).
He noted that members of the MPC observed a significant decline in food and core inflation, indicating the positive effects of the bank’s hawkish monetary policy stance since the beginning of the year.
“The committee’s decisions are as follows: raise the MPR by 150 basis points to 26.25% from 24.75%; retain the Asymmetric Corridor around the MPR at +100 to –300 basis points; maintain the CRR for DMBs at 45%; and keep the liquidity ratio at 30%,” Cardoso stated.
He emphasized that the primary focus of the MPC at this meeting was to achieve price stability by utilizing available monetary policy tools to control inflation. The Governor acknowledged that while year-on-year headline inflation rose in April 2024, month-on-month headline food and core inflation showed significant declines.
Cardoso agreed with public sentiments that rising food prices are a major driver of inflation in the country. He attributed the acceleration in food prices to factors such as increased transportation costs for farm produce, infrastructure-related constraints, security challenges in food-producing areas, and the exchange rate pass-through on domestic prices for imported food items.
The Governor noted that the CBN’s dissatisfaction with the current interest rate’s effectiveness in reducing inflation and stabilizing exchange rates prompted this third consecutive increase in the MPR. While there are signs of moderation in inflation, the foreign exchange market remains volatile, with the naira experiencing renewed weakness in May following significant gains in April.
The private sector, which has previously called on the CBN to ease off on interest rate hikes due to the increased cost of accessing capital, may be disappointed by this latest increase. The CBN’s MPC had already raised the MPR by a combined 600 basis points in its February and March meetings. Today’s increase brings the total rate hike to 750 basis points over five months. The next MPC meeting is scheduled for July 2024.
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