Why CBN Raised Interest Rate (MPR) To 22.75% - Green White Green - gwg.ng

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Why CBN Raised Interest Rate (MPR) To 22.75%

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The Central Bank of Nigeria (CBN) has raised its benchmark interest rate, known as the Monetary Policy Rate (MPR), to an unprecedented 22.75% in an unpretentious determination to bring down excess liquidity in the system and fight rampaging inflation.

The adjustment, announced on February 27, 2024, marks the first increase in eight months and sets a new record for the nation’s monetary policy stance. The decision was made under the leadership of Olayemi Cardoso, who chaired his first Monetary Policy Committee (MPC) meeting since assuming office in September 2023.

The hike in the MPR is part of a broader strategy by the CBN to reduce excess liquidity in the Nigerian economy, a necessary step to combat inflation and stabilize the naira. Alongside the MPR adjustment, the Cash Reserve Ratio (CRR) was also raised to 45 percent, further tightening the monetary conditions. This move reflects the CBN’s commitment to curbing inflationary pressures and restoring economic stability, despite the potential short-term impacts on borrowing costs and investment.

Throughout 2023, the CBN had gradually increased the MPR across four consecutive meetings, culminating in a rate of 18.75 percent by year-end. Despite these adjustments, other key financial indicators such as the CRR and Liquidity Ratio remained unchanged, with the CRR at 32.5 percent and the Liquidity Ratio at 30.0 percent. The latest increase to 22.75% signifies a more aggressive approach by the CBN to tackle the persistent inflationary pressures facing Africa’s largest economy.

This policy shift is expected to have wide-ranging implications for the Nigerian economy, influencing everything from consumer spending to foreign investment flows. As the country grapples with these economic adjustments, the CBN’s actions will be closely watched by both local and international observers for their impact on Nigeria’s economic trajectory.

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