CBN Raises Monetary Policy Rate to 22.75% to Tackle Inflation: MPC’s Decisive Move

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Governor Mr. Olayemi Cardoso, the Central Bank of Nigeria (CBN), announced the outcomes of the Monetary Policy Committee’s (MPC) inaugural meeting for the year, held on February 26th and 27th, 2024. According to him, all twelve committee members convened to deliberate on critical monetary policy measures aimed at addressing prevailing economic challenges.

Cardoso revealed that the MPC’s decisions reflected a concerted effort to tighten monetary policy further, with a focus on combatting inflationary pressures. Key resolutions included:

1. **Monetary Policy Rate (MPR) Increase:** The Committee opted to raise the MPR by a substantial 400 basis points, elevating it to 22.75% from its previous level of 18.75%. This decisive move underscores the MPC’s commitment to reining in escalating inflationary trends and restoring price stability within the economy.

2. **Adjustment of Asymmetric Corridor:** In tandem with the MPR hike, the MPC adjusted the asymmetric corridor surrounding the MPR, widening it to +100/-700 basis points from the previous range of +100/-300 basis points. This strategic adjustment aims to provide greater flexibility in managing liquidity within the financial system.

3. **Increase in Cash Reserve Ratio (CRR):** Recognizing the imperative of bolstering liquidity management, the Committee raised the Cash Reserve Ratio from 32.5% to 45.0%. This measure is intended to incentivize banks to maintain higher reserves, thereby mitigating inflationary pressures and fortifying the banking sector against potential risks.

4. **Retention of Liquidity Ratio:** While implementing significant adjustments to other monetary policy instruments, the MPC decided to retain the Liquidity Ratio at 30%, emphasizing a balanced approach towards maintaining liquidity adequacy within the banking system.

“The Committee’s deliberations were informed by a thorough assessment of prevailing economic conditions, particularly the persistent rise in inflation levels and inflation expectations. Members underscored the imperative of transitioning to an inflation-targeting framework to effectively address the persistence of inflationary pressures in the economy, he added.

Moreover, the MPC acknowledged the multifaceted nature of inflation drivers, including exchange rate pass-through, energy costs, fiscal deficits, and security challenges in major food-producing areas, said CBN governor In light of these factors, the Committee commended fiscal policy initiatives aimed at alleviating socio-economic burdens and reducing the cost of living for ordinary Nigerians.

On the global front, Cardoso reiterated that the MPC remained vigilant of external factors such as tight financial conditions and geopolitical tensions, which pose significant risks to domestic inflation dynamics. In light of these challenges, the Committee reaffirmed its commitment to implementing measures to foster price stability and moderate exchange rate pressures, he stressed.

Looking ahead, he concluded saying the MPC underscored its resolve to monitor economic developments closely and maintain a proactive stance to ensure that inflationary and exchange rate pressures moderate in the near term. The next MPC meeting is scheduled for March 25th and 26th, 2024, as the CBN continues its efforts to steer the Nigerian economy towards sustainable growth and stability.

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