CBN Raises Interest Rate to 27.25% to Curb Inflationary Pressures

The Central Bank of Nigeria increases the monetary policy rate in a bid to stabilize inflation and manage liquidity challenges

The Central Bank of Nigeria (CBN) raises interest rate to 27.25%, marking a significant shift in monetary policy as the country grapples with inflationary pressures. The Central Bank’s Monetary Policy Committee (MPC), during its 297th meeting, approved a 50-basis point increase in the Monetary Policy Rate (MPR), lifting it from 26.75% to 27.25%.

At a press briefing following the meeting, CBN Governor Olayemi Cardoso emphasized that the decision to raise interest rates was necessary to address inflation concerns. He noted that while Nigeria’s inflation rate dipped to 32.15% in August 2024, more aggressive steps were needed to bring long-term stability. The National Bureau of Statistics (NBS) reported this decline as the second decrease of the year, but core inflation remains a challenge.

Furthermore, the committee upheld the asymmetric corridor around the MPR at +500 and -100 basis points. They also increased the Cash Reserve Ratio (CRR) from 45% to 50%, while maintaining the liquidity ratio at 30%. These moves, according to Cardoso, are geared towards managing excess liquidity and foreign exchange demand pressures.

The decision comes as the CBN raises interest rate to 27.25% in a climate where exchange rates have shown relative stability, an outcome of the bank’s stringent monetary stance. Cardoso expressed that this stability would foster greater confidence among economic agents, allowing them to plan more effectively in the medium to long term.

Despite this, the committee acknowledged that inflationary pressures, especially from rising energy costs, remain a persistent challenge. While food inflation has moderated, energy prices continue to drive up core inflation. The MPC stressed the importance of close collaboration with fiscal authorities to tackle the issue of rising energy prices and their impact on inflation.

In addition, Cardoso disclosed that the federal government has committed to reducing fiscal deficits and pledged not to rely on “ways and means” for monetary financing. This is an important step towards curbing excess liquidity in the economy.

Looking ahead, the CBN governor shared the committee’s optimism that transportation costs would decrease once petroleum products begin lifting from Dangote Petroleum Refinery. This move is also expected to reduce foreign exchange demands for importing refined products and boost external reserves, leading to improvements in the country’s balance of payments.

Lastly, the CBN governor applauded ongoing government efforts to stabilize food prices through duty-free import windows for food commodities, which he believes will significantly alleviate short to medium-term price pressures.

The MPC is prepared to closely monitor economic developments and adjust its policies accordingly to ensure price stability and overall economic growth.