UNSTABLE ECONOMY: CBN Raises Benchmark Interest Rate to 27.25%

The Central Bank of Nigeria (CBN), has continued its battle against inflation which recently climbed to 32.15 percent.

Rising from the Monetary Policy Committee (MPC) meeting concluded on Tuesday, September, 24th, the committee members unanimously voted to raise Monetary Policy Rate (MPR) by 50 basis points from 26.75 percent to 27.25 percent.

The MPC also raised the Cash Reserve Ratio (CRR) by 50 basis points from 45 percent to 50 percent for Deposit Money Banks (DMBs) and from 14 percent to 16 percent for Merchant Banks. The committee retains the Liquidity Ratio (LR) at 30 percent and the Asymmetric Corridor at +500/-100 basis points around the MPR.

The Governor of the CBN Dr. Yemi Cardoso while briefing the media noted that the decision to further tighten the monetary policy was in response to the recent events in the economy regarding inflation and the stability of the foreign exchange market.

He mentioned the threats of food inflation, flooding in many parts of the country, rising petrol and energy prices as reasons why further monetary policy tightening should be executed.

“The Monetary Policy Committee’s decision to increase the Monetary Policy Rate (MPR) from 26.75% to 27.25% and the Cash Reserve Ratio (CRR) for Deposit Money Banks from 45% to 50% and for Merchant Banks from 14% to 16% aims to control inflation by reducing liquidity and increasing borrowing costs.”

“These measures will likely lead to higher loan rates for businesses and individuals, potentially slowing economic growth through reduced spending and investment. The liquidity ratio remains at 30%, suggesting no further liquidity squeeze beyond the CRR hike, while the asymmetric corridor around the MPR will encourage cautious lending by banks. Overall, these policies could stabilize the financial system but at the risk of economic slowdown due to tightened credit conditions and increased costs for borrowers” he concluded.