To combat the growing inflation rate, the Monetary Policy Committee of the Central Bank of Nigeria increased the benchmark interest rate from 14 to 15.5 percent.
This is a 150 basis point hike over the 14% rate that was approved at the most recent MPC meeting in July.
10 members voted in favor of the rate increase at the MPC meeting on Tuesday, according to CBN Governor Godwin Emefiele.
In August, inflation rose above the 20% threshold, sparking rumors that the CBN will increase interest rates once more.
The percentage of a bank’s total customer deposits held in cash at the central bank, or the cash reserve ratio, was also increased from 27.5 to 32.5 percent. However, it retained the liquidity.
Explaining further, Emefiele said, “Our research study at Central Bank has shown us that once inflation trends above 13 per cent, it will retard growth. We have seen inflation in the last four months move so aggressively in Nigeria.
“It is difficult for us, for this MPC with all the data available, with all the research that have been conducted; it is difficult for us not to go in a very aggressive way we decided to go today.”
He added, “What we have done at this meeting is to say we will move CRR up by five per cent to a minimum of 32.5 per cent; that we will move MPR up by 150 basis point. That means over the last four months, we moved MPR up by over 400 basis point.
“But at the same time, let us not forget that inflation rate in Nigeria at 20.5 per cent is still higher than our policy rate which means we are still in the realm of negative interest rate which remains injurious to the economy.”
