Ahead Of Election Spending, CBN Raises Interest Rate To 13%

The Central Bank has raised the Monetary Policy Rate ( MPR) to 13 per cent, in a bid to mop up liquidity ahead of the 2023 general elections.

This is the first time the bank has increased its MPR rate since September 2020 from when it was 12.5 per cent.

The MPR is the benchmark lending rate through which the CBN lends to banks.

The apex bank’s Monetary Policy Committee took the decision on Tuesday at the 285th meeting held in Abuja.

Among the reasons for increasing MPR from 11.5 per cent is to mop up liquidity ahead of election spending.

Nigeria’s inflation had risen to 16.82 per cent in April thereby complicating the central bank’s effort to manage the growing prices.

Although Nigeria’s economy is on the growth trajectory, the growth recorded is still fragile according to analysts.

In the first quarter, the National Bureau of Statistics said GDP growth was at 3.11 per cent.

Global inflationary pressure has influenced policy tightening as the International Monetary Fund also called on central banks for higher interest rates.

The US Fed increased benchmark interest rate by 0.5 percentage points to a target rate range of between 0.75 per cent and 1 per cent.

The Russia-Ukraine crisis had led to an upsurge in global inflationary pressure.

Food and energy prices have risen to over 40 years high. China has also been impacted by the Covid-19.

According to the CBN Governor, Godwin Emefiele, high energy prices, logistics issues for agric products and epileptic power supply worsened Nigeria’s inflationary pressure.

The governor said the bank’s outlook is gloomy due to the sanctions on Russia.

Emefiele said the MPC has decided to take a cautious shift to a policy hike that would sustain economic recovery.

MPC said tightening will help curb inflationary pressure before it reaches a galloping trend.

CBN said tightening will also provide incentive for capital inflow and restore investors’ confidence.

Emefiele added that reducing the MPR would also pressure the country’s exchange rate and lead to further depreciation of the Naira.

MPC Committee Decision

• Increased the MPR to 13 per cent
• Retain the Asymmetric Corridor of +100/-700 basis points around the MPR
• Retain the CRR at 27.5 per cent
• Retain the Liquidity Ratio at 30 per cent