CBN increases interest rate to 18%

 CBN increases interest rate to 18%

The Central Bank of Nigeria on Tuesday raised its benchmark lending rate to 18 percent in an aggressive push to contain the nation’s inflationary pressure.

The CBN governor, Godwin Emefiele, announced this Tuesday after the apex bank’s Monetary Policy Committee (MPC) meeting that began Monday.

Addressing journalists at the end of the two-day meeting in Abuja, Mr. Emefiele said the committee voted to keep the asymmetric corridor at +100 and -500 basis points around the MPR.

He also disclosed that the MPC voted to keep the Cash Reserve Ratio (CRR) at 32.5 percent, as well as the Liquidity Ratio at 30percent.

The CRR is the share of a bank’s total customer deposit that must be kept with the central bank in form of liquid cash, while the bank’s liquidity ratio is the proportion of deposits and other assets they must maintain to be able to meet short-term obligations.

In January, the MPC raised its benchmark lending rate from 16.5 percent to 17.5 percent in a sustained push to control inflation and ease pressure on the naira.

Monetary Policy

On Tuesday, Mr. Emefiele said the apex bank’s tightening measures had started to address inflationary pressure.

“We believe that as we continue this process that inflation will eventually begin to trend downwards,” he said.

“Whether we like it or not, between now and May, or the end of the administration, we will expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation, so we are not optimistic that prices will continue to come down because of these measures but we feel we need to continue to tighten,” he said.

According to him, the important thing is for the committee to watch the margin between the policy rate and inflation.

He said the margin has remained negatively wide, “and in economics, when you find negative real rate, it is a disincentive to even investment”.

He argued that everything has to be put in place by the monetary policy authorities to reign in inflation.

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