The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) which is the benchmark interest rate by 150 basis points to 26.25% from 24.75%.
The Committee retained the asymmetric corridor around the MPR to +100/-300 basis points. Cash Reserve Ratio of Deposit Money Banks was retained at 45.00 per cent. Liquidity Ratio was also retained at 30.00 per cent.
In a communique available on the website of CBN, the apex bank stated thus:
“The key focus of the MPC at this meeting remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation.
Members of MPC observed that while year-on-year headline inflation in April 2024 rose moderately, the month-on-month measures of headline, food and core all declined significantly. This follows a decline (month-on-month) of headline and food measures in March 2024, suggesting that the recent tight monetary policy stance of the Bank is beginning to yield the desired outcomes.
The MPC, however, noted that the inflationary pressure continues to be driven largely by food inflation. The Committee thus reiterated several challenges confronting the effective moderation of food inflation to include: rising cost of transportation of farm produce; infrastructure-related constraints along the line of distribution network; security challenges in some food producing areas; and exchange rate pass-through to domestic prices for imported food items. The MPC urged that more be done to address the security of farming communities to guarantee improved food production in these areas.
Members further observed the recent volatility in the foreign exchange market, attributing this to seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system. The Committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged the Bank to sustain its focus on accretion to reserves. The MPC commended the Bank for the recent approval of licenses of fourteen (14) international Money Transfer operators (IMTOs). This is expected to improve competition and lower the cost of transactions, thus attracting more remittances through formal channels.
The Committee noted with satisfaction that the banking system remains safe, sound, and stable, despite the headwinds confronting the economy. It commended the recent recapitalization initiative and urged the management to sustain its regulatory oversight to ensure the continued stability of the banking system.
Members focused on the best policy approach to continue to guide the economy towards achieving an overall macroeconomic balance. At this meeting, the Committee was thus faced with the option of either continuing with policy tightening or hold to observe the impact of previous rate hikes. Following an extensive review of risks and the near-term inflation outlook, the balance of risks suggests further tightening of policy to build on the benefits accruing from previous rate hikes”.