THERE are indications that the double primary auction mop up of system liquidity last week pushed the Open Repo Rate (OPR) and the Overnight rate (O/N) up by 296 basis points (bps) and 237bps week-on-week to 29.95 percent and 30.65 percent, respectively above the benchmark interest rate.
The overnight rate is the interest rate at which a depository institution (generally banks) lends or borrows funds from another depository institution in the overnight market. In many countries, the overnight rate is the interest rate the central bank sets to target monetary policy.
The Monetary Policy Committee (MPC) in May 2024 raised the Monetary Policy Rate (MPR) by 150 basis points to 26.25 percent from 24.75 percent.
Following a two-day meeting, the Central Bank of Nigeria’s (CBN) MPC agreed to increase the MPR for the third straight time to rein in the country’s soaring inflation levels pegged at 33.69 percent in April 2024.
Consequently, market liquidity recorded a deficit of N90.43 billion. “Week-on-week, the Open Buy Back (OBB) rate and the Overnight (OVN) rate increased by 86 basis points (bps) and 71bps to 29.95 percent and 30.65percent, respectively,” market watchers disclosed.
Meanwhile, the hike in Nigeria’s Monetary Policy Rate, also known as interest rate, by the CBN will further accelerate the country’s inflation and lead to massive job cuts across the country, private sector operators stated recently.
The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, and the Nigerian Association of Small Scale Industrialists explained that the increase in MPR would worsen the private sector’s ability to access affordable credit.
While they described the interest rate hike as a move that would come with unintended negative consequences, the Lagos Chamber of Commerce and Industry said the MPR hike was a price that businesses would have to pay, given the current state of the economy.
The CBN Governor, Olayemi Cardoso, said the new rate was focused on reducing current inflationary pressures and ensuring sustained exchange rate stability.
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