MPC Increase Monetary Rate to 14.0 percent

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Rising from its fourth meeting of the year, the Central Bank of Nigeria Monetary Policy Committee (MPC), faced with the challenges of a severely weakened macro-economic landscape, accentuated by stagflation dilemma, declining economic and business activities, and overall recessionary trend voted to increase the Monetary Policy Rate (MPR) to 14.0 percent an increase of 200 bases points. Monetary Policy Rate is the rate at which banks borrow from the Central Bank of Nigeria (CBN).

Key consideration: 1. Committee considered the negative real interest rate as discouraging savings; 2. Negative real interest rate does not encourage investment, especially for FPIs; 3. Members agreed that an upward adjustment of the MPR will support positive real interest rate, and increase liquidity of the forex market by attracting foreign USD inflows; 4.

Members noted that the balance of risk remains tilted against price stability. The committee maintained the asymmetric corridor around the MPR at +200/-500 bases points. Retain Cash Reserves Ratio (CRR) was at 22.5 percent while Liquidity Ratio (LR) was at 30.0 percent.

However, policy watchers are of the opinion that the committee decision reflects the fact that the elevated risk matrix in the macroeconomic environment limited the policy space and called for an appropriate balance between growth stance and stability.

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