The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has confirmed that the decision by the Monetary Policy Committee (MPC) to further tighten the Monetary Policy Rate (MPR) was unanimous. Cardoso, who also chairs the MPC, made this statement on Tuesday in Abuja while presenting the communique from the committee’s 297th meeting.
He reported that 11 out of the 12 committee members present approved the decision to raise the baseline interest rate, also known as the MPR, for the fifth consecutive time, increasing it by 50 basis points from 26.75% to 27.25%.
Additionally, Cardoso announced an increase in the Cash Reserve Ratio (CRR) for Deposit Money Banks by 500 basis points, raising it to 50% from 45.00%. The CRR for merchant banks was also raised by 200 basis points to 16% from 14%.
The MPC maintained the asymmetric corridor around the MPR at +500/-100 basis points and kept the Liquidity Ratio at 30.00%.
“The Committee noted the moderation in headline inflation year-on-year in July and August,” Cardoso stated. He also highlighted the relative stability and convergence in the exchange rate across various market segments, attributed to the apex bank’s tight monetary policy stance, which is expected to boost confidence and allow economic agents to plan for the medium to long term.
However, he emphasized that much more is needed to achieve the CBN’s price stability mandate. The MPC noted that while headline inflation had declined due to a moderation in food inflation, core inflation remains high, primarily driven by rising energy prices. This trend raises serious concerns among committee members, indicating persistent inflationary pressures.
The MPC reiterated the importance of collaborating closely with the fiscal authority to address the upward pressure on energy prices. They also expressed concerns about the need to mop up excess liquidity, manage foreign exchange demand, and tackle the growing fiscal deficit, explicitly ruling out the Ways and Means option to address the deficit.
Cardoso remarked on the continued growth in money supply and the necessity to curb excess liquidity and foreign exchange demand pressures. The committee acknowledged the rising fiscal deficit but noted the fiscal authority’s commitment not to resort to monetary financing through Ways and Means.
Furthermore, the MPC observed a strong correlation between Federation Accounts Allocation Committee (FAAC) releases and liquidity levels in the banking system, as well as its impact on the exchange rate. Consequently, the committee agreed to enhance monitoring of future releases to mitigate their effects on price developments.