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UPDATED: CBN Raises Interest Rate by 150bps To 26.25% amid Soaring Inflation



CBN Raises Interest Rate

The Central Bank of Nigeria (CBN) has raised the interest rate by 150 basis points from 24.75 per cent to 26. 25 per cent.

Following a two-day meeting, the bank’s Monetary Policy Committee (MPC) agreed to increase the Monetary Policy Rate(MPR) for the third straight time to rein in the country’s soaring inflation levels pegged at 33.69% in April 2024.

“The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its 295th meeting on the 20th and 21st of May 2024 to review recent economic and financial developments and assess risks to the outlook,” the CBN Governor Yemi Cardoso who is also the MPC chairman said on Tuesday.

“Decisions of the MPC. The committee’s decisions are as follows: 1. Raise the MPR by 150 basis points to 26. 25 per cent from 24.75 per cent.”

Cardoso, however, said the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBS) was retained at 45 per cent. The MPC also put the Asymmetric Corridor around the MPR at +100 and –300 basis points. It retained the liquidity ratio at 30 per cent.

Cardoso, who admitted the rising inflation levels in the country said the key focus of the MPC meeting was to achieve price stability by using tools available to rein in inflation.

He said the inflation pressure is being driven largely by food inflation, citing rising costs of transportation, infrastructure challenges, insecurity, and exchange rate issues as some of the factors affecting it.

The latest inflation reading showed that the headline rate continued its upward trend in April, with the headline reading surging by 49bps to 33.69% year-on-year driven by food and core inflation, with their readings increasing by +52bps and 94bps to 40.53% y/y and 26.84% y/y, respectively.

However, the headline rate’s growth moderated for the second consecutive month – rising by a combined +199bps between March and April compared to an acceleration of +278bps in January and February.

On a positive note, the month-on-month (m/m) inflation figures for all three measures decelerated in April. The headline reading moderated to 2.29% m/m (vs.3.02% m/m in March), the food inflation rate slowed to 2.50% m/m, down from 3.62% m/m in March), while the core inflation declined by -34bps m/m to 2.20% m/m in April.

A closer look at the detailed version of March’s personal statements of MPC members reveals that most members agreed that there is a time lag for previous rate hikes to permeate through the economy but stressed the need to raise rates to anchor heightened inflationary expectations.

However, members expressed concern over a sustained contractionary stance, which could further shrink the real sector by discouraging investments, adversely affecting employment and growth rates.

Pushed majorly by the removal of fuel subsidy last year and the floating of the naira, Nigerians are battling historic high inflation levels.

Despite protests and pressures from labour unions, President Bola Tinubu has repeatedly called for patience, expressing optimism that his government’s reforms will yield fruit.

In a bid to combat the falling value of the naira, the CBN in recent months targeted the operations of cryptocurrency exchange Binance. That and other measures led to an appreciation of the currency. But the gains appear to have stalled in recent weeks.

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