The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has unanimously voted to increase the Monetary Policy Rate (MPR) by 50 basis points to 27.25%.
This decision was announced by CBN Governor Olayemi Cardoso at a press briefing held at the CBN headquarters in Abuja on Tuesday.
The Monetary Policy Rate serves as the baseline interest rate in Nigeria’s economy, influencing all other interest rates.
It is the rate at which commercial banks borrow money from the CBN and subsequently lend to customers.
The MPR increase represents a 50 basis point hike from the previous rate of 26.75% set in July 2024.
This decision marks an 8.5% cumulative increase in interest rates since the current leadership took office a year ago.
Governor Cardoso explained that the committee aimed to tighten monetary policy. The MPC retained the asymmetric corridor around the MPR at +500 to -100 basis points and raised the Cash Reserve Ratio of deposit money banks by 500 basis points to 50% and merchant banks by 200 basis points to 16% from 14%. The liquidity ratio remains unchanged at 30%.
Financial experts had anticipated that the CBN would either hold or lower interest rates, given two consecutive months of declining headline inflation.
However, the MPC’s decision reflects a cautious approach to managing inflationary pressures and maintaining economic growth.
The increased MPR is expected to reduce consumption and spending, encourage savings and investment, strengthen the Nigerian Naira, and impact borrowing costs for businesses and individuals.
