The Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) has finally increased interest rate from 12 per cent to 14 per cent.
The MPC meeting which began on Monday and came to an end in Abuja today was to grapple with the nation’s economy that has faced challenges of a severely weakened macroeconomic landscape, accentuated by stagflation dilemma, declining economic and business activities, and overall recessionary trend.
The meeting also voted for:
- Increasing the Monetary Policy Rate (MPR) by 200bps to 14 per cent
- Maintaining the asymmetric corridor around the MPR at +200/-500bps
- Retaining Cash Reserves Ratio (CRR) at 22.5 per cent and
- Keeping the Liquidity Ratio (LR) at 30 per cent
Clearly, the Committee’s 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.
The committee considered negative real interest rate as discouraging savings; negative real interest rate does not encourage investment, especially for Foreign Portfolio Investments, 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 and Members noted that the balance of risk remains tilted against price stability.
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