CBN again, raises benchmark interest rate

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The Monetary Policy Committee of the Central Bank of Nigeria, has raised the benchmark interest rate from 14 to 15.5 percent.

This represents a 150-basis-point increase from the 14 percent rate voted during the last MPC meeting in July.

This is the third time the apex bank would be raising the Monetary Policy Rate, also known as the benchmark interest rate, in five months.

The MPC had raised the rate from 11.5 to 13 percent in May, and further to 14 percent in July, and it has now increased it to 15.5 percent.

At the end of the MPC meeting in Abuja, CBN Governor, Godwin Emefiele, told journalists that 10 members voted in favour of the rate hike.

The cash reserve ratio (CRR), which means the share of a bank’s total customer deposit kept with the central bank as cash, was also raised to 32.5 percent, from 27.5 percent since July.

Emefiele said that members were concerned with the continued aggressive movement in inflation, “even after the rate hike at its meeting in May and July 2022, and expressed an unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.”

“We will keep increasing the interest rate to reduce the high effect of inflation,” Emefiele said, noting that “the tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates.”

However, in a recent report, the World Bank Group warned developing economies that simultaneous rate hikes in response to increasing inflationary pressure may trigger a global recession and a string of financial crises.

In its new study titled “Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes,” the World Bank said that currently expected trajectory of interest-rate increases and other policy actions might not be sufficient to bring global inflation back down to levels seen before the pandemic.


READ ALSO: World Bank Warns Against Simultaneous Rates Hike


Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to the report.

But Mr Emefiele explained that the MPC was of the view that with the aggressive policy normalisation of the economies, losing the policy stance could hurt the economy.

“CBN research study has shown that once inflation trends above 12.5 or 13 per cent, it will retard growth. So, it is difficult for us, with all data available, not to go in a very aggressive way. To some, this is not expected because it increases the cost of borrowing, but this is the best we can.”

“At this meeting, the option of reducing the policy rate was not considered as this would be gravely detrimental to reigning in inflation. The committee thus agreed unanimously to raise the policy rate to narrow the interest rate gap and rein in inflation. The committee thus voted unanimously to raise the MPR.”


The CBN governor further said that the Apex bank would  implement aggressive cash reserve requirement measures to mop up excess liquidity from commercial banks by Thursday.

He cautioned banks to fund their accounts immediately, warning that lenders who failed to fund their bank accounts would be denied access to the foreign exchange market.







Punch/Hauwa Abu

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