The Central Bank of Nigeria (CBN) Monetary Policy Committee, in its first decision since the Bola Tinubu administration assumed office on May 29, 2023, has raised the monetary policy rate (MPR) by 0.25 percentage points, bringing it to 18.75 percent. The decision was announced by Folashodun Shonubi, the acting governor of the Central Bank, in a press briefing held at the CBN headquarters.
The MPR serves as a crucial benchmark for interest rates in the Nigerian economy. Despite President Tinubu’s campaign promises to reduce interest rates, the CBN has opted to increase the MPR as a measure to combat the surging inflation rate, which rose to 22.79% in June 2023 due to escalating food prices and transportation costs following the removal of subsidies for Premium Motor Spirit (petrol).
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In explaining the committee’s decision, the acting governor stated that the moderate rate hike was aimed at stabilizing inflation expectations, narrowing the negative real interest rate gap, and bolstering investor confidence.
Additionally, he expressed optimism that the current volatility surrounding foreign exchange rates would soon normalize. The recent decision also involved adjustments to the asymmetric corridor, now set at +100 and -300 basis points around the MPR, while the cash reserve ratio (CRR) and liquidity ratio were retained at 32.5 percent and 30 percent, respectively.
It is worth noting that this is the first monetary policy committee (MPC) meeting since the suspension of Godwin Emefiele as the CBN governor. Previous monetary policy decisions, such as the naira float, had been implemented by the bank under the new government, but this decision marks the first interest rate adjustment made by the apex bank during President Tinubu’s tenure. As the nation grapples with economic challenges, all eyes will be on the impact of this interest rate increase on borrowing costs, consumer spending, and overall economic activity in Nigeria.
