The Central Bank of Nigeria (CBN) has once again increased its benchmark lending rate, raising it to 27.25 percent from 26.75 percent on Tuesday.
The decision, announced by CBN Governor Olayemi Cardoso at the conclusion of a two-day Monetary Policy Committee (MPC) meeting in Abuja, aims to sustain a downward trend in inflation levels.
The benchmark rate serves as a standard interest rate set by central banks, guiding lending rates and influencing economic activity, inflation, and financial stability.
“After reviewing the upside risks to price developments and the potential downside risks to output growth recovery, the committee decided to tighten policy further in order to protect the progress made in moderating inflationary pressures,” Mr. Cardoso stated.
Additionally, the central bank adjusted the asymmetric corridor around the Monetary Policy Rate (MPR) from +100 to -300 basis points, now set at +500 to -100 basis points.
The committee voted to increase the Cash Reserve Ratio (CRR) for commercial banks to 50 percent, while adjusting the CRR for merchant banks to 16 percent. It also opted to maintain the liquidity ratio at 30 percent.
Mr. Cardoso noted the committee’s recognition of the easing inflation rate and the relative stability and convergence in the exchange rate across various market segments, attributing these developments to the bank’s stringent monetary policy stance.
According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate decreased to 32.15 percent in August 2024, down from 33.40 percent in July, marking a reduction of 1.25 percentage points. This decline represents the second consecutive month of slowing inflation.
The MPC acknowledged the fiscal authority’s commitment to avoiding monetary financing through Ways and Means.
“Furthermore, members observed a strong correlation between fiscal releases and liquidity levels in the banking system, as well as their impact on the exchange rate. Consequently, the committee agreed to enhance monitoring of future releases to mitigate their effects on price developments,” he added.
The MPC emphasized that the exchange rate has remained stable due to stringent monetary policies, although concerns persist regarding high core inflation driven by escalating energy prices.
It also underscored the need for collaboration with the fiscal authority in addressing these inflationary pressures, alongside increased scrutiny of government spending to better understand its effects on liquidity and the exchange rate.
The MPC recognized the government’s efforts to combat food inflation and supply shortages, expressing satisfaction with the stability of the banking sector.
