MPR Hike Becoming Weak In Taming Inflation– CBN

A key member of the Monetary Policy Committee of Nigeria’s Central Bank, Adenikinju Festus has faulted banks for not increasing interest rates along the 15.5 per cent monetary policy rate.

Festus faulted Deposit Money Banks in his personal statement made at the last MPC meeting.

He said, “Despite the successive raising of the MPR by the MPC at its last two meetings, the lending rates by the banks are not reflecting these signals from the CBN.

“Hence, between July and August 2022, prime lending rate rose marginally from 15.53 per cent in July 2022 to 16.44 per cent in August 2022.

“Maximum lending rate remained flat at 26.86 per cent, while average savings rate rose from 1.07 per cent in July 2022 to 1.79 per cent in August 2022. Time deposits rose to 5.59 per cent in August 2022 from 4.69 per cent in July 2022.”

Inflation has become CBN’s major concern after prices rose to record high.

When the CBN Governor, Mr. Godwin Emefiele took over office on June 4, 2014, inflation was at a single digit of 8.2 per cent.

Currently, inflation is at 20.77 per cent as of September 2022 despite moving the MPR thrice in 2022 alone.

It rose from 19.64 per cent in July to 20.52 per cent in August.

This was despite the tightening of monetary policy from 11.5 per cent to 13.6 per cent in May, and to 14 per cent in July.

The CBN pushed the rates further to 15.5 per cent in the last meeting.

The CBN Act mandates the apex bank on price stability, but the bank has not been able to abate inflationary pressure.

Festus argued that the inability of banks to move their interest rates may suggest the weakness of using MPR to control credit by banks.

He said, “The inability of the retail rates by the Deposit Money Banks to reflect the increase in the MPR suggest either the weakness of the MPR as an effective instrument to target credit creation process by the commercial banks, or the rate increase by the MPC is not sufficient to reduce the liquidity held by the banks.”