CBN raises Monetary Policy Rate to 15.5%, Highest in 20 years

ABUJA – The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday voted to increase the benchmark interest rate (monetary policy rate) to 15.5% from 14%, being the third hawkish move by the apex bank in 2022 following the rising rate of inflation.

Godwin Emefiele, the Governor of the CBN, disclosed this while reading the communique of the monetary policy committee meeting on Tuesday 27th September 2022.

The Central Bank during its last MPC meeting had increased the interest rate from 11.5% to 14% in the last two meetings, however with the inflation rate still spiking above 20%, the CBN has raised the rate further to 15.5% in a bid to combat the rising cost of goods and services.

The last time the apex bank maintained an interest rate higher than 15% was in 2002, bringing the current rate of 15.5% to a 20-year high.

Highlights of the committee’s decision include: MPR raised by 150 basis points from 14% to 15.5%; The asymmetric corridor of +100/-700 basis points around the MPR was retained; CRR was raised to a minimum of 32.5%; and the liquidity Ratio was also kept at 30%.

“Members deliberated on the impact of the widening margin between the current policy rate of 14 per cent and the inflation rate of 20.52 per cent.

“At this Meeting, the option to loosen the policy rate was not considered as this would be gravely detrimental to reining-in inflation. The Committee thus, agreed unanimously to raise the policy rate to narrow the negative real interest rate gap and rein-in inflation.

“The Committee thus voted unanimously to raise the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR). Ten members voted to raise the MPR by 150 basis points, one member by 100 basis points, and another member by 50 basis points. Ten Members voted to increase the CRR by 500 basis points, while two Members voted to increase CRR by 750 basis points.

“In summary, the MPC voted to: Raise the MPR to 15.5 per cent; Retain the asymmetric corridor of +100/-700 basis points around the MPR; Increase the CRR to a minimum of 32.5 per cent; and Retain the Liquidity Ratio at 30.0 per cent” he said.

The focus of the committee was targeted at the aggressive rise in headline inflation, which is already affecting the growth of the economy.

Emefiele noted that the committee did not consider the option of reducing or holding rates, but rather how much an increase should be made.

According to the Governor, members deliberated on the impact of the widening margin between the current policy rate of 14% and the inflation rate of 20.52%, leaving the members with the only option of raising interest rates, noting that a loosening stand will be detrimental in reining in inflation.

Hence, the committee agreed unanimously to raise the policy rate, narrow the negative real interest rate and rein in inflation. Notably, 10 members voted to raise the MPR by 150 basis points, 1 by 100 basis points, and 1 by 50 basis points.

In the same vein, 10 members voted to increase the CRR by 500 basis points, while two members voted to increase it by 750 basis points.

With the benchmark interest rate now at a record high of 15.5%, the cost of credit is expected to rise, as well as the yield of government fixed securities, while the CBN will continue to use the CRR to mop up liquidity in the financial sector.