May 25, 2022

Inflationary pressure forces reversal in CBN’s interest rate policy

BREAKING: Inflation rate drops to 15.4% ― NBS

•Banks’ lending rates to go up

By Emma Ujah

THE Central Bank of Nigeria (CBN), yesterday, raised the Monetary Policy Rate (MPR) to 13 per cent, from 11.5 per cent, citing aggressive inflationary trends in the country and across the globe.

The new rate signals a policy reversal from expansionary to contractionary stance. The previous stance had brought the rate steadily down to 11.5 percent in 2020, from 14 percent in 2019.

This is the high point of decisions at the end of the two-days Monetary Policy Committee, MPC, yesterday where all other monetary parameters were retained with +100/-700 basis points around the asymmetric corridor; Cash Reserve Ratio at 27 per cent and Liquidity Ratio at 30 per cent.

Speaking at the backdrop of the decisions, the CBN Governor, Godwin Emefiele, said that global supply disruptions occasioned by Russia’s invasion of Ukraine and the resurgence of the COVID-19 in China, the hub of global manufacturing, had resulted in unprecedented food and energy prices which have triggered high levels of inflation globally as well as in Nigeria.

Emefiele said that the CBN was faced the dilemma of bringing down inflation rate and at the same time implementing policies that would push growth.

Consequently, he stated: “The MPR felt that we need interest rates to move up, particularly in the non-profit sector that we’re looking at.


“There is need for the interest rate to be signalled and be made even more aggressive, because people would have expected a rise would have done a signaling but MPC felt that the 150 basis points will be necessary to really show that we want to truly trim inflation and rein it in to level that we think can begin to reverse rather than continuing to go up.”

On the implication of this policy shift, Emefiele stated: “What are we doing to make sure that this does not affect growth; of course, you will expect that lending rate will go up, yes, lending rate will go up in the non-priority sector. We’re not going to deny that; but at least our priority sectors, where we will remain committed to, MPC and CBN management will continue the development finance activities at single-digit interest rates for 10 years long and two-year moratorium.

“For what you call the non-priority areas, the goal is that we should be able to use that as the basis to see how we’re able to tame inflation, to the level that we think is comfortable. “What is important here is that these decisions have been taken, because we felt that they may continue in the next couple of months to be an aggressive acceleration in inflation.”