Nigeria’s interest rate fifth highest globally – MPC member

The current Monetary Policy rate of 27.50 per cent charged by the Central Bank of Nigeria to commercial banks on borrowings is the fifth highest in the world, a member of CBN’s Monetary Policy Committee, Mustapha Akinkunmi, has said.

In Nigeria, the Monetary Policy Rate is the interest rate set by the Central Bank of Nigeria that serves as a benchmark for lending rates in the economy. It influences the cost of borrowing and the overall money supply.

The MPR is the benchmark interest rate that the CBN lends to banks. It influences the interest rates that commercial banks charge their customers for loans and the rates offered on deposits.

This rate, which was raised six times in 2024, is only lower than that of Argentina, with an interest rate of 29 per cent; Zimbabwe, with 35 per cent; Turkey, 45 per cent interest rate; and the highest rate of 59.4 per cent MPR in Venezuela.

Akinkunmi disclosed this in the newly released personal statements of members after the 299th MPC meeting held between February 19 and 20, 2025.

The seasoned economist said the rating highlights the country’s ongoing battle with inflation, currency depreciation, and economic instability.

He said, “Nigeria’s Monetary Policy Rate of 27.50 per cent, which is the fifth highest in the world (after Venezuela 59.4 per cent; Turkey 45 per cent; Zimbabwe 35 per cent; Argentina 29 per cent) reflects the country’s ongoing battle with inflation, currency depreciation, and economic instability.”

He noted that in emerging markets and developing economies, central banks have taken divergent views on the rates, which impede manufacturing and production.

He said China and Russia have held rates at 3.10 per cent and 21.0 per cent respectively, since October 2024, while the Brazilian Central Bank increased its policy rate to 13.25 per cent from 10.50 per cent.

The Central Bank of Kenya reduced its rate by 50 basis points to 10.75 per cent in February 2025, while those of Ghana and Egypt held their rates at 27.00 and 27.25 per cent, respectively.

“The overall global growth projection of 3.3 per cent thus reflects a balanced mix of these advanced and developing economies, with EMDEs helping to drive the broader global growth rate. Nigeria’s growth forecast of 3.2 per cent in 2025 reflects gradual improvement as the country grapples with economic challenges, including inflation, oil price fluctuations, and security concerns,” the statement added.

A spiral rise in the price of goods and commodities had forced the apex bank to effect bold policy measures across six Monetary Policy Committee meetings.

This includes raising the Monetary Policy Rate by 875 basis points to 27.50 per cent, increasing the Cash Reserve Ratio for Other Depository Corporations by 1,750 basis points to 50.00 per cent, and adjusting the asymmetric corridor around the MPR to tame inflation.

Although this decision received backlash from manufacturers and critical stakeholders, the CBN Governor, Olayemi Cardoso, said that without its policy interventions, inflation could have surged to 42.81 per cent by December 2024.

On the economy, the development economist and technology strategist said the cash reserve ratio of 45 per cent reflects the CBN’s efforts to manage inflation and control liquidity in the banking system.

The CBN had mopped up over N26.6tn as the requirement, which is mandatory for Deposit Money Banks, as part of moves to limit money in circulation and control inflation.

“This implies that commercial banks will be required to hold more reserves with the central bank, which directly limits the amount of money in circulation.

“As a result, this could lead to a contraction in credit to the private sector, which will moderate inflationary pressures but may also slow down economic growth,”  Akinkunmi said.

He further disclosed that in January 2025, private individuals led ownership of deposits with 45.20 per cent of the total bulk deposits in the banking system.

“This suggests that Nigerian consumers, whether through personal savings accounts, current accounts, or other forms of deposit, hold a significant portion of the liquidity in the banking system.

“Private corporates hold 42.07 per cent of total deposits, indicating a significant role in the banking system, especially considering their lower percentage compared to individual ownership. Therefore, I call for careful, balanced monetary policy decisions to maintain consumer confidence in the banking system.”

The oil and gas sector also dominated the credit landscape, with the largest share of N18bn in credit facilities as of January 2025.

“This aligns with the sector’s importance to Nigeria’s economy, given that oil is a major source of revenue and foreign exchange for the country. Thus, further economic diversification is required to reduce the economy’s vulnerability to fluctuations in oil prices and global demand.”

Another MPC member, Bandele Amoo, urged the government to tackle the electricity infrastructure deficit to systematically moderate inflation.

He said the advice follows an opinion survey which indicated that energy challenges and exchange rate depreciation were among the main factors driving inflation in Nigeria.

Amoo said, “Opinion survey from the states showed that insecurity, production cost, subsidy issues, energy challenges, and exchange rate depreciation are the main factors driving inflation in Nigeria.

“The marked decline in the inflation rate after the re-basing exercise underscores a shift in real interest rates into positive territory. This will improve investor sentiment for the Nigerian economy, particularly within the corridor of fixed income instruments.

“It is hoped that when the government facilitates the efficient implementation of the 2023 Electricity Act to tackle the electricity infrastructure deficit in Nigeria, it will systematically moderate inflation further.

“Energy is a major component of business costs, which could stimulate investment while also reducing household electricity and gas expenses, increasing real disposable income, and potentially boosting demand for other goods and services. Lower energy prices would help to hasten the disinflationary process, potentially facilitating monetary policy easing, which may further support investment.”