Just days after the naira hit a new low, the Nigerian Central Bank increased the key interest rate. After the recent monetary policy meeting, the Central Bank of Nigeria announced that it has raised the monetary policy rate to 15.5%. The central bank hopes to narrow the negative real interest rate gap and curb inflation by raising the key interest rate by 150 basis points. The rate hike comes days after the naira hit an all-time low against the dollar. Reduction of the negative real interest rate gap. According to the Central Bank of Nigeria (CBN), members of the Bank’s Monetary Policy Committee (MPC) “voted unanimously to increase the policy rate to narrow the negative real interest rate gap and contain inflation.” After the vote, Nigeria’s key interest rate – the monetary policy rate (MPR) – is now 15.5% from 14%.
The CBN statement said the decision to increase the MPR by 150 basis points was taken because members of the MPC felt that any attempt to lower the policy rate would be counterproductive. In this [MPC] meeting, the option of lowering the policy rate was not considered, because it would have a great impact on controlling inflation… Therefore, the committee unanimously voted to increase the monetary rate (MPR) and the reserve requirement. (CRR). ). ) Ten members voted for an increase of 150 basis points, one member voted for 100 basis points and another for 50 basis points. Nigeria’s inflation rate, which has now increased by 280 points in four months, has reached 20.52 percent in August 2022. To prevent further escalation, the MPC said there is need to ensure that the CBN “pays considerable attention”. It is given to control swelling.
Meanwhile, the bank’s decision to raise the MPR comes days after Nigeria’s exchange rate hit an all-time low against the US dollar. According to a report by Bloomberg, the parity of Naira in the market fell from 715 Naira to one dollar to 720 Naira to one dollar. The official market bought one US dollar for less than 440 naira. After the recent major devaluation of the naira, the gap between the official exchange rate and the parallel market has widened to over 280 nairas.