The Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR), also known as the benchmark interest rate, to 26.75 percent with an eye on combating inflation and fostering a favorable climate for foreign investment.
This represents a 50-basis point, lowest rate hike since February 2024 when inflation was 31.70 percent.
Asymmetric corridor was expanded to +500/-100 basis points, while liquidity ratio was retained at 30 percent.
The cash reserve ratio (CRR) was retained at 45 percent for deposit money banks and at 14 percent for merchant banks.
After the two-day Monetary Policy Committee (MPC) meeting in Abuja which ended on Tuesday, Olayemi Cardoso, governor of the CBN, who announced the outcome of the meeting, said the members agreed to hold the parameters, other than the interest rate, unchanged.
Most analysts had expected the CBN’s MPC to further hike the MPR following the rising inflationary pressure and the volatility in exchange rate.
This year, the MPC has aggressively implemented a cumulative rate hike of approximately 800 basis points since February 2024, alongside adjustments to other monetary tools, to combat rising inflation. In comparison, 2023 saw a total rate hike of 225 basis points.
At its recent meeting in May 2024, the committee increased the policy rate by 150 basis points to 26.25 percent, while keeping all other policy parameters unchanged.
“Given the MPC’s resolve to tame rising inflationary pressures, we expect the MPC to sustain its hawkish stance. Consequently, we expect the MPC to raise the MPR by 50 – 100 bps,” analysts at FBNQuest said.
Razia Khan, managing director, chief economist, Africa and Middle East Global Research for Standard Chartered Bank, said pressure on the naira on both the official and parallel markets represents a clear risk to Nigeria’s policy rate.
“This is also a non-consensus view. The analyst consensus expects a 75 basis points (bps) rate hike to 27.0 percent at the July meeting. Against our expectation, June inflation quickened modestly to 34.2 percent y/y (34.0 percent in May), despite the base effect from Nigeria’s first fuel subsidy adjustment in June 2023,” she said.
