The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Monday raised the country’s Monetary Policy Rate (MPR) from 18.5 per cent to 18.75 per cent.
The Acting Governor of the CBN, Mr Folashodun Shonubi made this known on Tuesday, while presenting the communique from the MPC meeting.
GOOD EVENING NIGERIA reports that the MPR is the baseline interest rate upon which which other interest rates are built.
Shonubi announced that the committee also adjusted the asymmetric corridor from from +100/-700 to to +100/-300 basis points around the MPR, retained the Cash Reserve Ratio (CRR) at 32.5 per cent; and retained the Liquidity Ratio at 30 per cent.
According to Shonubi, the committee is confronted with only two policy options, to hold or marginally hike the policy rate to offset the moderate increase in headline inflation.
“Considering the option to a hold, the committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth.
“Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price development and was gradually but steadily yielding the expected outcome.
“The option to continue to hike the policy rate, albeit moderately, also presents a strong alternative,” he said.
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He said that this was premised on the expected liquidiiy injections into the economy, from the recent policy developments and the likely impact on inflation.
“The committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which will ultimately lead to the recovery of output growth.
“The balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence.
“The MPC, thus, resolved by a majority vote to raise the Monetary Policy Rate (MPR) by 25 basis points. Six members voted to raise MPR by 25 basis points while five memnbers voted to hold the MPR Constant.
“All members, however, voted to narrow the asymmetric corridor from +100/-700 to +100/-300 around the MPR,” he said.
EXPLANATION: Possible Impact of New Interest Rate on People and Businesses
The raised Monetary Policy Rate (MPR) to 18.75% by the Central Bank of Nigeria (CBN) could have significant implications for individuals and businesses in the country. As the baseline interest rate, the MPR serves as a benchmark for other interest rates, influencing borrowing costs and investment decisions.
For people, the higher interest rate might lead to increased borrowing costs on mortgages, personal loans, and credit cards, potentially impacting disposable income and household budgets.
Savers and depositors may see higher returns on their savings accounts, but lending rates may also rise, affecting access to credit for those seeking loans.
On the business front, higher interest rates could translate to increased costs of borrowing for businesses looking to expand or invest in new projects. This may lead to reduced capital expenditure and potentially impact business growth and employment prospects.
Furthermore, industries heavily reliant on borrowing, such as real estate and manufacturing, may experience a slowdown as financing becomes costlier. On the other hand, businesses with surplus funds and investment opportunities may benefit from higher returns on their investments.