CBN jacks up interest rate to 27.25%

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR), which serves as the benchmark interest rate in the economy, to 27.25 per cent. This decision marks a 50 basis point increase from the previous rate of 26.75 per cent announced in July 2024.

The MPR is a critical tool in the CBN’s monetary policy framework, as it influences all other interest rates within the economy, shaping lending and borrowing costs across various sectors.

Addressing journalists during a press briefing following the committee’s fifth meeting for the year at the CBN headquarters in Abuja, the Governor of the apex bank, Olayemi Cardoso, stated that the decision to further tighten monetary policy was unanimous among the committee members.

“The committee was unanimous in its decision to further tighten policy and thus decided as follows: raise the MPR to 27.25 per cent,” Cardoso said.

This increase brings the total rise in interest rates under the current leadership of the CBN to 8.5 per cent since Cardoso assumed office a year ago. The move is aimed at curbing inflationary pressures and stabilizing the economy, despite recent declines in headline inflation.

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In addition to the hike in the MPR, the MPC decided to retain the asymmetric corridor around the MPR at +500 to -100 basis points. The Cash Reserve Ratio (CRR) for deposit money banks was raised by 500 basis points to 50 per cent, while the CRR for merchant banks increased by 200 basis points to 16 per cent from the previous 14 per cent. Meanwhile, the liquidity ratio was maintained at 30 per cent.

“The MPC decided to retain the asymmetric corridor around the MPR at plus 500 to minus 100 basis points,” Cardoso continued. “It also raised the Cash Reserve Ratio of deposit money banks by 500 basis points to 50 per cent from 45 per cent, and for merchant banks by 200 basis points to 16 per cent from 14 per cent, while retaining the liquidity ratio at 30 per cent.”

The decision comes as a surprise to some financial experts who had predicted that the CBN might opt to hold or even lower the interest rate following two consecutive months of declining inflation. However, the central bank’s move indicates a continued focus on maintaining tight monetary control to manage inflation and stabilize the naira.