BREAKING: CBN increases interest rate to 27.25%

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) after a two-day meeting  in Abuja increased the interest rate or Monetary Policy Rate (MPR) by 50 basis points  to 27.25 per cent in September 2024 from  previous 26.75 per cent. 

Additionally, the committee on Tuesday elevated the Cash Reserve Ratio (CRR) by 50 basis points, increasing the requirement for Deposit Money Banks (DMBs) from 45per cent to 50per cent, and for Merchant Banks from 14per cent to 16per cent.

The committee has decided to maintain the Liquidity Ratio (LR) at 30per cent and the Asymmetric Corridor at +500/-100 basis points in relation to the MPR.

The hike goes against analysts expectation on the backdrop of slowdown in inflation rate. Nigeria’s inflation rate fell for a second consecutive month in August 2024, down to 32.15per cent year-on-year from 33.40per cent in July 2024.

A group of analysts at Cordros Research had stated that, “We think the Monetary Policy Committee faces a pivotal decision – either maintain current rates to allow previous hikes to fully impact the economy or continue rate increases to reinforce gains from prior adjustments owing to the elevated inflation risks exacerbated by the recent rise in PMS price.

“Our baseline expectation is for the MPC to adopt a “HOLD” stance in the forthcoming meeting, as we expect the Committee to refer to the recent decline in headline inflation, even as inflation risks are now strongly tilted to the upside. Additionally, the intensification of global monetary policy easing reduces the risk of capital flight from developing markets like Nigeria, lessening the pressure for defensive rate hikes.

“Also, we highlight the dovish signals from the CBN coming off the apex bank’s adjustment of the asymmetric corridor to +500/-100basis points around the MPR.

“Specifically, the CBN limited the Standing Deposit Facility (SDF) rate of 25.75per cent on deposits of up to N3.00 billion, with a fixed rate of 19per cent on excess deposits, thus discouraging banks’ utilisation of this window.

“As a result, fixed income yields have pared down over time. Given these developments, we expect the MPC to keep the policy rate at 26.75per cent while retaining all other parameters.”