CEM REPORT, ECONOMY| In a move aimed at taming soaring inflation, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has increased the benchmark interest rate, known as the Monetary Policy Rate (MPR), by 150 basis points to 26.25% from 24.75%. This marks the third consecutive hike in 2024, signifying the CBN’s unwavering commitment to achieving price stability.
In a press briefing following the 295th MPC meeting, CBN Governor Yemi Cardoso revealed the committee’s decisions:
Interest Rate Hike: The benchmark interest rate, the Monetary Policy Rate (MPR), was raised by 150 basis points, bringing it to 26.25% from its previous level of 24.75%.
Monetary Policy Tools Unchanged: The Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) remained at 45%. Additionally, the asymmetric corridor around the MPR was maintained at +100 and -300 basis points. The liquidity ratio for banks also stayed put at 30%.
Governor Cardoso emphasized the MPC’s unwavering commitment to curbing inflation, which soared to a troubling 33.69% in April 2024, according to the National Bureau of Statistics (NBS).
He acknowledged the positive impact of the bank’s hawkish monetary stance, highlighting a decrease in both food and core inflation figures, suggesting some success in taming specific inflation components.
“The key focus of the MPC at this meeting remained to achieve price stability,” Governor Cardoso stated. “Members observed that while year-on-year headline inflation did rise moderately in April, the month-on-month headline food and core inflation declined significantly.”
CBN Address the Root Causes of Inflation
Governor Cardoso acknowledged public concerns regarding surging food prices as a significant driver of inflation. He outlined several factors contributing to this rise, including:
Increased transportation costs for farm produce.
Infrastructure limitations hindering efficient distribution.
Security challenges impacting food production in specific regions.
The impact of exchange rate fluctuations on domestic prices of imported food items.
Foreign Exchange Market Volatility
The MPC addressed the recent volatility in the foreign exchange market, attributing it to “seasonal demand” for the US dollar. Governor Cardoso emphasized that such fluctuations are natural occurrences within a functional foreign exchange market.
He assured the public that the CBN remains committed to maintaining transparency in the FX market through the willing-buyer, willing-seller model. He clarified that the observed depreciation is simply a reflection of the interplay between supply and demand forces.
“Members further observed the recent volatility in the foreign exchange market attributing this to seasonal demand—a reflection of the interplay between demand and supply in a functioning market system,” Cardoso remarked.
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If You Ask Me
The CBN’s latest interest rate increase reflects a determined effort to combat inflation and stabilize the Nigerian economy. While the move might lead to higher borrowing costs, it aims to curb inflation by disincentivizing spending and encouraging saving.
The continued effectiveness of this approach will depend on addressing the structural issues driving food prices up. Investing in infrastructure development, tackling security concerns in food-producing regions, and potentially implementing targeted policies to regulate food prices are crucial steps to complement the CBN’s monetary policy measures.
Nigerians can expect further pronouncements and actions from the MPC as they continue to monitor the evolving economic landscape and adjust their strategies accordingly.
