By Chinwendu Obienyi, Lagos
In its bid to tame soaring inflation, the Central Bank of Nigeria (CBN), on Tuesday, raised the Monetary Policy Rate (MPR) from 13 per cent to 14 per cent.
This was even as it warned of further tightening if prices continue to rise.
CBN Governor Godwin Emefiele disclosed this on Tuesday during the 286th meeting of the Monetary Policy Committee (MPC) held in Lagos.
The committee also retained the asymmetric corridor at +100 and -700 basis points around the MPR, retain CRR at 27.5 per cent, and retain the liquidity ratio at 30 per cent.
The MPR is the baseline interest rate in an economy while every other interest rate used within such an economy is built on it.
Whilst noting that a previous 150 basis points rate increase in May had not permeated enough in the economy to halt rising inflation, which came in at 18.6 per cent in June, its highest level in more than five years, Emefiele stated that the rising inflation which jumped to five year high and also low purchasing power of Nigerians were key to the MPC’s decision.
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He revealed that all members of the MPC voted for rates to rise adding that the majority voted for a 100 basis points in their bid to provide the necessary support to strengthen the nation’s fragile economy.
“Members were unanimous that given the aggressive increase in inflation, coupled with a result that negative consequences particularly from purchasing power poor as well as retarding growth, there is a need to continue to tighten. However, the policy dilemma was hinged around the level of tightening needed to rein in inflation without dumping in manufacturing or which could result from the higher cost of borrowing.
Aside from narrowing the negative real interest rate gap, members also believed that tightening will signal a strong determination of the bank to aggressively address its price stability mandate and portray the emphasis on sensitivity to the impact of inflation on vulnerable households and the need to improve their disposable income,” Emefiele said.
Furthermore on inflation, the CBN Governor, said that there is a need to look at other economies while adding that inflation must be dealt with while the CBN use development finance tools to continue its push towards improved output growth.
“Inflation is a terrible scourge and so we need to do more work on inflation. As long as we see inflation at a level that deters growth, the MPC is very determined that if it continues, we would continue to tighten rate,” he said.