THE Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) to 13.5 per cent, in a bid to mop up excess liquidity ahead of the 2023 general elections.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria on Tuesday, May 24, 2022, concluded its two-day meeting which was the third in the year.
The Committee at the end of the meeting elected to hike the Monetary Policy Rate (MPR) and retain other policy parameters the benchmark interest rate (MPR) which is the benchmark interest rate was raised by 150 basis points (bps) to 13.00 per cent from 11.50 per cent.
It left the asymmetric corridor at +100/-700 bps around the MPR; retained the cash reserve ratio at 27.50per cent and the Liquidity Ratio retained at 30.00 per cent.
The decision of the committee according to the Chief Executive Officer Centre for the Promotion of Private Enterprise [CPPE], Dr Muda Yusuf will raise cost of funds for Small and Medium-scale Enterprises borrowers, impact their operating costs, prices of their products and profit margins.
According to him, though there would be some adverse effects on the equities market, investors in the fixed income instruments may benefit from the hike.
Meanwhile, CBN Governor, Godwin Emefiele, while briefing reporters at the end of the committee’s meeting held at the apex bank’s headquarters in Abuja said the sharp rise in inflation across both the advanced and emerging market economies has generated growing concerns among central banks as the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels.
It should be noted that this was the first time in two and a half years that the policy-setting committee of the nation’s financial regulator would increase the MPR, which measures the interest rate.
The MPR is the baseline interest rate in an economy while every other interest rate used within such an economy is built on it.
According to Emefiele, “Consequently, the major central banks such as the U.S. Fed, the Bank of England, European Central Bank, and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rate which may ultimately impact capital flows away from emerging market economies.”
He explained that at the 285th meeting of the MPC, six out of the 11 members of the committee voted to raise the key rate.
He advised the various banks in the country and the Federal Government to redouble efforts in supporting monetary authority.
The change in rates suggests the apex bank has finally accepted the impact of inflation on its monetary policies.
Before now, it has preferred a policy that forced the government to look towards addressing supply bottlenecks, while believing lower interest rates could help spur lending and thus increase economic growth.
“While growth has continued to improve, members noted that inflation was confronted with upward pressure due to emerging risks within the domestic and external environment. The MPC, however, noted that the substantial upward push to price levels continued to be influenced by supply-side factors such as the scarcity of PMS, persisting insecurity and backlash from the Russia-Ukraine war. These require a careful and focused policy intervention to address and resolve. In this light, the MPC, urged the Bank to continue using the tools at its disposal, while increasing its collaboration with the fiscal authority to ensure that inflation is adequately reined in and growth is returned to a strong and sustainable path,” the MPC communique read in part.
However, listing the key drivers of inflation, Yusuf noted that liquidity challenges in the forex market affected access to manufacturing and other inputs.