The Traffic

Breaking: CBN Hikes Interest Rate to 27.5% Amid Bold Economic Moves

By Achimi muktar 

The Central Bank of Nigeria (CBN) has once again raised the Monetary Policy Rate (MPR), this time to 27.5% from the previous 27.25%, in a bid to address inflationary pressures and stabilize the economy. This move, announced by the apex bank's Governor, Dr. Olayemi Cardoso, signals a determined push to tame rising prices and maintain economic stability.

Why the Rate Hike?

Explaining the decision, Dr. Cardoso cited persistent inflation concerns, with the latest data from the National Bureau of Statistics (NBS) revealing increases in headline, food, and core inflation on a year-on-year and month-to-month basis.

“The persistent price pressures adversely impact citizens' income and welfare. The committee was unanimous in its decision to tighten the policy further,” Cardoso stated.

Key elements of the revised policy include:

Raising the MPR by 25 basis points to 27.5%.

Retaining the Asymmetric Corridor at +500/-100 basis points.

Maintaining the Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks.

Keeping the Liquidity Ratio at 30%.

Economic Positives: External Reserves Hit $40.88 Billion

Despite inflationary concerns, Dr. Cardoso highlighted some bright spots in the country’s economic landscape. Notably, Nigeria’s external reserves grew to $40.88 billion as of November 26, 2024, up from $40.06 billion at the end of October.

“This improvement reflects a current account surplus, enhanced remittances, and increased capital inflows. These indicators show that key policies by the monetary and fiscal authorities are yielding desired results,” he said.

Currency Stability and Exchange Rate Pressures

The Governor reassured Nigerians of the naira’s stability, stating that the currency had remained steady since June despite ongoing exchange rate pressures driven by high market demand.

“Stability in the naira is critical for a stable and growing economy, and we’ve seen encouraging trends in this regard,” he noted, expressing optimism for even greater economic progress by the first quarter of 2025.

CBN’s Ambitious Goals: Exiting FATF Grey List

The CBN also has its sights set on removing Nigeria from the Financial Action Task Force (FATF) Grey List by the second quarter of 2025. Cardoso stressed that exiting the Grey List is critical to unlocking significant capital inflows, including diaspora remittances.

Yuletide Relief: Cash Availability Initiative Coming

With reports of cash shortages emerging across the country, particularly in anticipation of the festive season, the CBN has promised immediate measures to address the issue.

“We are ensuring that all Deposit Money Banks get the cash they need to avoid gaps. Spot checks are ongoing, and we’re deploying cash buffers to ease access during the yuletide season,” Cardoso assured, emphasizing the bank’s commitment to mitigating undue hardship.

Looking Ahead

While the decision to hike interest rates may tighten borrowing conditions, the CBN remains confident in its policies’ long-term benefits. Dr. Cardoso urged Nigerians to remain patient, noting that the effects of policy measures often take time to materialize.

“The results of these initiatives will become clearer by early next year. We’re laying the groundwork for a stable, resilient economy,” he concluded.

With bold strategies and renewed focus, the CBN is setting the stage for a transformative 2025. Whether these measures will sufficiently counter inflation while boosting liquidity and economic growth remains to be seen.