CBN adjusts policy rate to 18.75% in bid to control inflation

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to increase the country’s Monetary Policy Rate (MPR) from 18.5 per cent to 18.75 per cent.

“Considering the option to hold, the committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth,” said Mr. Folashodun Shonubi, the Acting Governor of the CBN, during the presentation of the communique from the MPC meeting.

The MPR serves as the baseline interest rate on which other interest rates are built. In addition to the rate hike, Shonubi announced that the committee also adjusted the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.

“The committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which will ultimately lead to the recovery of output growth,” he added.

Shonubi explained that the committee faced only two policy options: to hold the rate steady or to marginally increase it to counter the moderate increase in headline inflation.

“Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price development and was gradually but steadily yielding the expected outcome,” he stated.

“The option to continue to hike the policy rate, albeit moderately, also presents a strong alternative,” Shonubi remarked, based on the expected liquidity injections into the economy resulting from recent policy developments and their likely impact on inflation.

“The MPC, thus, resolved by a majority vote to raise the Monetary Policy Rate (MPR) by 25 basis points. Six members voted to raise the MPR by 25 basis points while five members voted to hold the MPR Constant. All members, however, voted to narrow the asymmetric corridor from +100/-700 to +100/-300 around the MPR,” he said.

While the committee remained cautious in reaching a policy decision, members recognized the need to continue supporting investment for the eventual recovery of output growth.

Ultimately, “the balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence,” Shonubi added.

NAN

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