UPDATE: CBN raises benchmark interest rate to 16.5% to tame inflation
• To unveil redesigned Naira notes on Wednesday
The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting on Tuesday raised its benchmark lending rate to 16.5 percent in a continuous effort to control inflation and ease pressure on the naira.
Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, who disclosed this at the end of the MPC meeting in Abuja, explained that previous increases were beginning to yield results and there was the need to keep tightening. Hence tightening it by 100 basis points.
Mr. Emefiele also told journalists during the post-MPC meeting briefing that the new redesigned Naira notes will be presented to President Muhammadu Buhari for unveiling on Wednesday during the Federal Executive Council (FEC) meeting.
This implies that the new date to release the redesigned Naira notes has been brought down from December 15, 2022 to November 23, 2022, even though the date for the old notes to cease being legal tender still remains January 31, 2023.
The CBN hopes that raising rates will reduce the money supply in the economy and rein in inflation, but some analysts are of the view that the move also faces the risk of slowing economic growth.
The apex bank boss announced that the MPC also retained the Cash Reserve Ratio (CRR) at 32.5 percent, and voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR, adding that the liquidity ratio was retained at 30 percent.
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It is pertinent to explain that Cash Reserves Ratio is the share of a bank’s total customer deposit that must be kept with the CBN in the form of liquid cash, while bank’s Liquidity Ratio is the proportion of deposits and other assets they must maintain to be able to meet short-term obligations.
The CBN had earlier in the year, raised the cash reserve requirement (CRR) to a minimum of 32.5 percent in a strategic move to mop-up liquidity.
Mr Emefiele said global inflationary pressure was quite high and there was a need to moderate the increasing inflationary concerns and added that the MPC did not consider the need to loosen the rates due to the prevailing circumstances although there were indications previous decisions to hold increase rates were beginning to yield results.
Nigeria’s inflation rate in October 2022 hit a 17-year high of 21.09 percent amid skyrocketed food and petrol prices.
Aside from these developments in the nation’s economy, the CBN has continued to face the daunting task of reducing the currency in circulation, while at the same time curbing the rising cost of goods and services across the country.
In a bid to control the money supply, the CBN last month announced the decision to redesign N200, N500 N1000 notes and will by December 15, 2022, will start circulating the redesigned notes.
On Monday, the Naira appreciated to N775 per dollar at the parallel section of the foreign exchange market (Black market), gaining N15 or 1.9 percent compared to the N790 it traded last Friday. However, at the Investors and Exporters window, the Naira appreciated against the dollar, exchanging at N445.38.
There has been apprehension in some quarters that a higher interest rate will raise the cost of borrowing for businesses, and may make goods and services even more expensive for consumers as the festive season approaches.