CBN Raises MPR to 15.5%
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the interest rates to 15.5 per cent from 14 per cent as part of efforts to tackle inflation in the last four months.
Inflation rates in the last four months has not been comfortable as Inflation in August was 20. 52 per cent, rising up from 19.64 per cent in July.
At the end of the meeting, the apex bank adjusted Asymmetric Corridor at +100 & -200 basis points around the Monetary Policy Rate MPR .
MPC also increased the Cash Reserve Ratio (CRR) of banks to a minimum of 32.5 per cent and stressed that commercial banks will be debited from their reserves by Thursday.
The MPC also raised the Liquidity Ratio to 30 per cent. This is the most aggressive monetary policy decision ever taken by Nigeria’s central bank in decades.
At a media briefing in Abuja, the CBN said it would continue to raise interest rates as long as inflation continues to trend upwards.
CBN governor, Godwin Emefiele who spoke at the event said using the interest rate hike is the easiest and most preferred option, stressing that the option has been adopted globally.
“If you want to rein in inflation, the option is to raise the interest rate to a level that is equal or possibly higher than the inflation rate, so that inflation rate must lag policy rate,” Emefiele insisted.
He stressed that if the inflation rate does not lag the interest rate, it becomes a negative interest rate and a disincentive to investors.
He noted that as long as inflation keeps rising, not raising interest rates will retard growth and leave the people poorer than they could have been.
“Therefore it is imperative that you must raise interest rate in order to rein in inflation.” the CBN governor said.
He, however, admitted that though raising interest rates may retard growth all the same but the reason for raising interest rates is not to help slow down inflation but compensate for an aggressive rise in inflation.
According to him, if the alternative CBN does not raise the rate, consumption and expenditure would be affected because the purchasing power of individuals would be eroded or dissipated.
He argues that the quantity of goods people will be able to buy would also shrink and this will invariably increase the level of poverty.
He, therefore, concluded thus: “You don’t have a choice but to raise interest rates.”
According to him, a study conducted by the apex bank has shown that once inflation trends above 12 or 13 per cent it would definitely retard growth no matter how you try to rein it in.
