Cash Reserve Ratio Also Adjusted as CBN Addresses Inflation and Exchange Rate Pressures
The Central Bank of Nigeria (CBN) has announced an upward adjustment of its benchmark interest rate, the Monetary Policy Rate (MPR), to 22.75%. The decision was disclosed by the CBN Governor, Mr. Olayemi Cardoso, following the conclusion of the Monetary Policy Committee (MPC) meeting held in Abuja.
Cardoso revealed that the asymmetric corridor around the MPR has been modified to +100 – 700 basis points from +100 – 300 basis points. Additionally, the Cash Reserve Ratio (CRR) has seen an increase from 32.5% to 45%, while the Liquidity Ratio remains unchanged at 30%.
The decision-making process of the committee was influenced by considerations such as the prevailing inflationary and exchange rate pressures, projected inflation, and the escalating expectations of inflation. Expressing concern over the continuous surge in inflation levels, the committee emphasized its commitment to reversing this trend, acknowledging the delicate balance between stimulating output growth and curbing inflation.
Cardoso stated, “The committee, however, acknowledged the tradeoff between the pursuit of output growth and taming inflation but was convinced that enduring output expansion is possible only in an environment of low and stable inflation.”
It is noteworthy that this move follows a strategy implemented by Nigeria’s MPC in 2023, where the MPR was gradually increased over four consecutive meetings. Despite these aggressive measures, other key indices such as the Cash Reserves Ratio (CRR) and Liquidity Ratio remained constant during that period. The CBN’s decision reflects its proactive stance in addressing economic challenges and maintaining stability in the face of inflationary pressures and evolving economic conditions.