The committee voted to retain the Cash Reserve Ratio (CRR) at 45 per cent for commercial banks and adjust the CRR of merchant banks from 10 per cent to 14 per cent.
The Central Bank of Nigeria (CBN) Tuesday increased the benchmark interest rate by 150 basis points, moving it from 24.75 per cent to 26.25 per cent, in response to rising food inflation.
The benchmark interest rate, also called MPR (monetary policy rate) can be considered the interest rate the CBN uses to lend to banks who then lend to customers at a higher rate.
The increase in MPR was announced at the end of a two-day Monetary Policy Committee (MPC) meeting held on Monday and Tuesday.
Olayemi Cardoso, the governor of the CBN, announced that the MPC voted to retain the asymmetric corridor around the MPR at +100 to -300 basis points
He said the committee voted to retain the Cash Reserve Ratio (CRR) at 45 per cent for commercial banks and adjust the CRR of merchant banks from 10 per cent to 14 per cent.
The committee also voted to retain the liquidity at 30 per cent.
According to him, the key focus of the meeting remains to achieve price stability by effectively using tools available to the monetary authority to rein in inflation.
Inflation
Data from the National Bureau of Statistics indicates that the headline inflation rate in April rose to 33.69 per cent, up from 33.20 per cent in the previous month, mainly driven by rising food prices.
In April 2024, the year-on-year food inflation rate soared to 40.53 per cent, representing a rise of 15.92 percentage points from the 24.61 per cent recorded in April 2023.
Mr Cardoso said the MPC noted that the inflationary pressure continues to be driven largely by food inflation.
"The committee last reiterated several challenges confronting the effective moderation of food inflation to include rising costs of transportation of farm produce, infrastructure-related constraints along the line of distribution network, security challenges in some food producing areas and exchange rate pass-through to domestic prices for imported food items.
"The MPC urged that more be done to address the security of farming communities to guarantee improved food production in these areas."
He said the committee was faced with the option of either continuing with policy tightening or holding to observe the impact of previous rate hikes.
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He stated that after thoroughly reviewing the risks and the near-term inflation outlook, the balance of risks indicates the need for further policy tightening to enhance the benefits achieved from prior rate increases.
He announced that the next MPC meeting would be held on 22 and 23 July.
Before the latest MPC meeting, some financial experts told PREMIUM TIMES that they foresaw an increase in the benchmark interest rate.
"I think that they will raise the rate by another 100 basis points given the position of the inflation rate," Ayodeji Ebo, MD/Chief Business Officer of Optimus by Afrinvest, said.
Also, Olumide Adesina, a financial analyst at Quantum Economics, said that the central bank will maintain high interest rates to make naira-denominated assets more appealing.
"The apex bank will keep rates elevated for the straight 11th time, to amplify the attraction of naira-denominated assets
"The highest price is to stabilize the Nigerian FX market and boost confidence in the naira while buying some time for the fiscal side," he said.
