By Tony Obiechina, Abuja 

The Central Bank of Nigeria (CBN) on Tuesday raised the Monetary Policy Rate (MPR), also known as interest rate, from 13.5% to 15.5% as its way of tackling inflation.

The apex bank governor, Mr Godwin Emefiele made the annoucement at a media briefing after that Monetary Policy Committee meeting in Abuja.

This is the highest rates adopted by the CBN after it held the Minimum Rediscounted Rate (MRR) at 15 per cent on August 17, 2003.

The MRR was the rate adopted by the CBN until it introduced a new Monetary policy framework in 2006 which replaced MRR with Monetary Policy Rate (MPR).

The CBN governor, who spoke after the 287th MPC meeting, said its decision was a move to save the naira and curb inflation, adding that the members voted unanimously to raise the rates.

It could be recalled that benchmark lending rate was as low as six per cent 13 years ago in 2009.

When Covid-19 struck in 2020, the MPC reduced the MPR by 100 basis points from 12.5 to 11.5 per cent.

But this was increased to 13.0 per cent and by another 100 basis points to 14 per cent in May and July 2022 respectively.

Currently, Nigeria’s inflation is at 20.52 per cent according to the National Bureau of Statistics Consumer Price Index for in August 2022.

During the meeting, the apex bank governor said high energy cost and electricity tariff pushed the inflation upwards.

According to him, the increase in US rates has also pressured the naira and making investors exit the Nigerian market.

Emefiele said broad outlook remains clouded due to headwinds of the Ukraine war and residual impacts of Covid-19.

He said the Nigerian economy will grow but at a “much subdued rate” due to the increased demand for money driven by the 2023 general election.

According to him, the rise in inflation over the past four months has been worrisome  stressing that loosening inflation would worsen Nigeria’s economic condition as well as naira depreciation.

He said a tight policy stand would help appreciate the naira.

According to analysts, the hike in interest rate for three consecutive times is a way of luring foreign inflows into the country and easing the pressure on the naira.

The MPC also raised Cash Reserve Ratio to 32.5 per cent from 27.5 per cent while holding other parameters constant.
The Asymmetric Corridor, thus, remains at +100/-700 basis points around the MPR, and the Liquidity Ratio remains at 30 per cent.
Asymmetric interest rate corridor is a new tool developed to increase the flexibility of monetary policy.
It provides the ability to make timely responses to external finance or risk sentiment shocks through active management of daily open market operations.
“The MPC noted with concern the continued aggressive movement in inflation, even after the rate hike at its meeting in May and July.
“It expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery, Emefiele said.
Some experts had earlier projected that the CBN would increase the rates to rein in inflation.
Prof. Umhe Uwaleke, an economist, in his reaction said the MPC would increase the MPR again, by at least, 50 basis points.
Uwaleke, a Professor of Capital Market at Nasarawa State University, said that his projection was informed by rising inflation.
“Aside inflationary pressure and the need to tame it, the MPC would be considering current global monetary developments such as the hike in policy rates by central banks in developed countries.
“For example, the U.S. Federal Reserve recently increased the benchmark rate by 75 basis points, while the Bank of England increased by 50 basis points,’’ he had said.
Uwaleke said that monetary tightening by central banks of U.S. and the UK continued to trigger capital outflows from Nigeria with negative implications on the exchange rate.
“The MPC would equally consider this as justification to increase the MPR,’’’ he said.
He, however, urged the MPC to hold the prevailing rates constant as tightening may not tame inflationary trend.
“Be that as it may, if I were a member of the MPC, I would vote for a hold position. In other words, I would advise that the policy rates be held.
“This is because the major drivers of inflation in Nigeria today are cost-push related rather than demand-pull.
“Furthermore, policy tightening may not really tame inflationary pressures that are stemming more from high cost of energy and negative impact of insecurity on food output.
“Any hike in rate at this time will hurt output growth through higher cost of lending to SMEs,’’ he said.
Dr Tope Fasua, another economist, urged the MPC to retain the subsisting rates as past rates increases had not tamed inflation.
“I expect that they may further raise rates. My advice to the MPC would be that they hold rates.
“We have raised rates by 250 basis points in the last two meetings but inflation has surged further.
“This means that our own inflation is not tightly linked with interest rates and may recede in its own time.
“Ours is a bit of a carryover from the COVID-19 era of production shutdown and imported inflation because our economy is dependent on foreign ones battling inflation presently,’’ he explained.
According to Fasua, raising rates further will only be a continuation of punishment for local industries which borrow locally and are struggling to achieve previous levels of production post Covid-19.
“Banks are always quick to raise lending rates anyway. The CBN had to recently force them to increase savings rates.
“Their margins are always so high, so the committee and the CBN must be careful about raising rates ad infinitum,’’ Fasua said. Additional reports from (NAN)