CBN raises interest rate once again by 0.25% to 27.50%
…Says inflation, FX pressures to abate early 2025
By Seun Ibiyemi
The Central Bank of Nigeria (CBN) has once again raised its interest rate, increasing it by 25 basis points from 27.25 percent to 27.50 percent, in a bid to address the rising inflation in the country.
This decision was announced by the Governor of the CBN, Mr. Yemi Cardoso, who also serves as the Chairman of the Monetary Policy Committee (MPC), at the conclusion of the MPC meeting held in Abuja.
The Monetary Policy Committee unanimously agreed to the hike, raising the interest rate by 25 basis points to 27.50percent, up from its previous level in September.
The central bank monetary policy committee has thus raised interest rates 6 times in a row and every single meeting held this year.
Meanwhile, the Committee decided to retain the Monetary Policy Reserve Ratio (CRR) at 50 percent for Deposit Money Banks and 16 percent for Merchant Banks
The Liquidity Ratio (LR) remains unchanged at 30 percent, alongside the Asymmetric Corridor, which stays at +500/-100 basis points around the Monetary Policy Rate (MPR).
“The Committee has decided unanimously to further tighten its monetary policies and decided thus: one, raise the MPR by 25 basis points to 27.5percent. And retain the asymmetry corridor around the MPR at +500/-100 basis point.
“The committee retained the Cash Reserve Ratio (CRR) of deposit money banks at 50 percent and merchant banks at 16 percent. Four the committee decided to retain the liquidity ratio at 30 percent,” Cardoso said.
In addition, Cardoso stated that the committee’s decision was made against the backdrop of a renewed hike in inflationary pressure in the country.
He referenced the headline inflation, which, according to the National Bureau of Statistics (NBS), rose to 33.88percent in October 2024.
According to Cardoso, the committee considered the following increases in inflation affecting price stability:
“The meeting was held on the backdrop of renewed inflationary pressures as the headline, food and core measures rose year-on-year in October 2024. The committee was particularly concerned that all 3 measures also hitch up on a month-on-month basis, suggesting the persistence of price pressure with an adverse impact on the income and welfare of citizens.
“Members therefore agreed unanimously to remain focused in addressing price development,” Cardoso added.
Meanwhile, the Central Bank of Nigeria (CBN) will deploy every possible ‘orthodox’ strategy to tame inflation, Governor Olayemi Cardoso said on Tuesday, with a firm assurance that ongoing monetary tightening measures will begin to yield positive results early next year.
Cardoso spoke during a press conference in Abuja to announce the outcomes of the two-day meeting of the Monetary Policy Committee (MPC) which raised the Monetary Policy Rate (MPR) for the sixth time by 25 basis points to 27.50 percent.
The rate raise is targeted at addressing rising inflation, which stood at 33.88 percent as of October 2024.
“The Central Bank is resolute and committed to continuing to fight the war against inflation and there is no going back on that.
“We are going to deploy everything in our arsenal to ensure that we are able to tame it. And of course, this entails the return to orthodox monetary policies,” Cardoso stated amid agitations of rising interest rates on the economy.
According to him, the Committee was unanimous in its decision to further tighten policy, though members took a decision to retain the asymmetric corridor around the MPR at +500/-100 basis points; Cash Reserve Ratio of Deposit Money Banks at 50 percent and Merchant Banks at 16 per cent; as well as the Liquidity Ratio at 30 percent.
Under Governor Cardoso, the CBN has raised the MPR six times in 2024. But inflationary pressures have renewed with the headline, food and core measures rising year-on-year in October 2024.
Data from the National Bureau of Statistics (NBS) showed that headline inflation (year-on-year) rose to 33.88 per cent in October 2024, from 32.70 percent in September.
On a month-on-month basis, it also rose to 2.64 percent in October 2024, from 2.52 percent in the previous month, with both the food and core components contributing to the continued rise in headline inflation.
Food inflation rose further to 39.16 percent in October 2024, from 37.77 percent in September, while core inflation also rose to 28.37 percent in October 2024, from 27.43 percent in September.
The Committee was particularly concerned that all three measures also inched up on a month-on-month basis, suggesting the persistence of price pressures, with attendant adverse impacts on income and welfare of citizens.
But Cardoso was optimistic that current measures would be able to tame prices in coming months due to the lag effect.
“It is important for people to understand that there is a time lag between when you implement policies and when they have an impact. That time lag can be anything up from six to nine months to even a year. Our own perspective is that we expect to see greater results in the first quarter of 2025.”
He said in addition, that the apex bank is working very assiduously with some of the relevant agencies to ensure that structural impediments to growth are handled appropriately.
“We are ensuring that we are on top of the game, and that the foreign exchange market operates at its most optimal manner to reflect the true value of the currency, and of course we have price discovery.”
The governor, however, pointed out that current economic challenges are not peculiar to Nigeria, but global, as being discussed at various international fora.
