CBN raises interest rate to 14%, retains interbank lending rate

In a bit to halt the spiralling inflation rate in the country and the continuous downward trend of the naira, the Central Bank of Nigeria (CBN), Tuesday, said it has  raised its Monetary Policy Rate, MPR, by more than 200 basis points to 14 percent.

The MPR is the interest rate the CBN charges commercial banks for loans it advances them to shore up their liquidity.

Prior to this move, the CBN had discarded its 16-month-old pegging of the dollar to let the naira trade freely, though there is yet to be cheering news from that.

According to reports, part of the volt face was to see the possibility of luring back foreign investors, who fled both the equities and bond markets in the wake of the plunge in crude prices.

Experts had predicted that there might be between 100 to 150 basis  points  early in  July, but not many forecast a 200 basis-point rise as was announced  today (Tuesday).

Read also: Kaduna refinery may produce Aviation fuel to save Nigeria N30bn annually

Speaking to reporters, the CBN Governor, Godwin Emefiele, said five out of eight members of the Monetary Policy Committee (MPC) voted in favour of a rate increase, during a two-day policy-setting meeting.

“Such a decision, it was argued, gives impetus to improving the liquidity of the foreign exchange market.

“Members were of the opinion that this would boost manufacturing and industrial output, thereby stimulating growth,” he said.

But the existing cash reserve ratios for commercial banks was retained. It was averaged at 10.15 percent from 2007 until 2016 when it reached an all time high of 14 percent in July of 2016.

That this was hovering around a record low of 6 percent between 2009 and 2010 was significant, said an observer.

Nigeria’s economy contracted in the first quarter of which saw Emefiele saying Africa’s biggest economy  is not likely to rebound in the second quarter.

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