The policy-setting committee of the Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR), which measures interest rate, from 14 percent to 15.5 percent, the third consecutive increase in 2022.
In July, the apex bank raised the MPR from 13 percent to 14 percent to tame rising inflation.
The monetary policy rate (MPR) is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.
Addressing journalists on Tuesday after the committee’s meeting at the CBN headquarters in Abuja, Godwin Emefiele, governor of the apex bank, said 10 members of the committee voted for the rate hike.
The committee also raised the cash reserve ratio (CRR) to 32.5 percent from 27.5 percent. CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash.
He said the aggressive rate hike would shape the country’s economic growth.
According to him, the committee voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR and liquidity ratio to a minimum of 32.5 percent.
“It was of the view that with the aggressive policy normalisation of the economies, losing the stance of policy will result in a sharp decrease of exchange rate leading to further hikes that will be afloat,” he said.
“Als, it will help consolidate the impact of the last two policy rate hikes which is already reflected in the slowing growth rate of oil supply in the economy. We also understand that an aggressive rate hike will slow capital outflows and likely attract capital inflows and appreciate naira.
“We will keep increasing the interest rate to reduce the high effect of inflation.”
In August, Nigeria’s annual inflation rate climbed to a 17-year high of 20.52 percent as the high cost of food items continues to affect citizens.
Emefiele said as inflation continues to reign upward, the MPC will always hike rates to tame the pressure on citizens.
“The tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates,” he added.
“CBN research study has shown that once inflation trends above 12.5 or 13 percent, it will retard growth. So it is difficult for us, with all data available, not to go in a very aggressive way. To some, not expected because it increases the cost of borrowing, but this is the best we can.”