CEM REPORT, FINANCE | The Central Bank of Nigeria (CBN), has raised its benchmark lending rate to 16.5 percent.
This is an increase of 100 basis points from 15.5 percent and the highest since 2001.
While reading the communique of the last MPC meeting of the year in Abuja on Tuesday, the Governor of CBN, Godwin Emefiele, noted that the tightening will help restore investors’ confidence whilst curbing higher inflation rates.
He added that previous increases were beginning to yield results noting that there was need for more tightening.
Emefiele stated that global inflationary pressure was quite high and there was need to moderate the increasing inflationary concerns.
He added that the MPC did not consider the need to loosen the rates due to the prevailing circumstances although he said there were indications previous decisions to hold increase rates were beginning to yield results.
Furthermore, Emefiele disclosed that the committee voted to retain the Cash Reserve Ratio (CRR) at 32.5 percent and the asymmetric corridor at +100 and -700 basis points around the MPR.
Earlier in the year, the CBN had raised the cash reserve requirement (CRR) to a minimum of 32.5% in a bid to mop-up liquidity.
In October, Nigeria’s inflation rate hit a 17-year high of 21.09% amid skyrocketed food and petrol prices.
With a higher interest rate cost of borrowing for businesses is expected to increase. Contrary to projection by the CBN, goods and services may even be more expensive for consumers as the yuletide season approaches amidst other circumstances surrounding Nigerian inflation.
CBN however hopes it will control inflation and ease pressure on the naira.