Monetary Policy Decisions
Nigeria’s Central Bank Raises Interest Rates by 50bps to 27.25%
The Central Bank of Nigeria (CBN) has implemented a 50 basis point increase in its key interest rate, now standing at 27.25%. This adjustment marks a total increase of 850 basis points for the year, as part of the Monetary Policy Committee’s (MPC) ongoing efforts to address persistent core inflation, which reached 27.60% in August 2024.
In addition to the rate hike, the CBN has made several notable adjustments:
- Asymmetric Corridor: The corridor around the Monetary Policy Rate (MPR) remains unchanged at +500bps/-100bps.
- Cash Reserve Ratio (CRR): The CRR for deposit money banks has been raised by 500bps to 50.0%, while the CRR for merchant banks has increased by 200bps to 16.0%.
- Liquidity Ratio: The liquidity ratio is retained at 30.00%.
While headline inflation has decreased from a peak of 34.19% in July, the CBN’s hawkish approach underscores its concern regarding rising core inflation, particularly in light of the recent 47% surge in petrol prices.
The CBN Governor emphasized the need for continued interest rate increases to combat the prevailing negative real interest rate environment, where inflation currently exceeds the monetary policy rates. Despite the rise in the MPR to 27.25% and a decline in headline inflation to 32.15%, a significant gap remains. We expect this gap to widen further due to the recent petrol price increase.
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