CBN Hikes Interest Rate to 18.7%
By Patience Ikpeme
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the interest rate to 18.75 percent.
This decision was made in anticipation of a surge in cash in the system due to government policies such as cash incentives to vulnerable members of society and possible salary increments for civil servants.
Addressing journalists at the end of Monetary Policy Committee meeting in Abuja on Tuesday, the Acting Governor of the CBN Mr Folashodun Adebisi Shonubi said members of the MPC took the decision because of “expected liquidity injections into the economy, from the recent policy developments and the likely impact on inflation”.
The Committee he said however remained cautious in arriving at the policy decision “as members noted the need to continue to support investment which will ultimately lead to the recovery of output growth”.
At the end of the meeting it was ultimately decided by a majority of six votes to increase interest rate by 25 basis points, from 18.50 to 18.75 per cent; adjust the asymmetric corridor to +100/-300 basis points around the Monetary Policy Rate (MPR) from the previous corridor of +100/-700 basis points around the MPR; retain the Cash Reserve Ratio (CRR) at 32.5 per cent; and retain the Liquidity Ratio at 30 per cent.
Folashodun Shonubi noted that the MPC aims to manage inflation expectations, reduce the negative real interest rate gap, and improve investor confidence.
In addition to the interest rate hike, the MPC is also considering other measures to reduce liquidity and moderate inflation.
The committee has called on the government to attract investments in non-oil sectors to boost revenues and shield the economy from global shocks.
The CBN will intervene in the foreign exchange market to maintain stability and encourage foreign capital inflows.
The Ag. CBN governor also spoke about the redesign of the Naira notes and the volume of new notes in circulation.
He said that the old notes will gradually be replaced with new ones.
The committee Shonubi said has highlighted the potential impact of recent policy reforms on commercial bank assets and urged the CBN to monitor the banking system closely.
