CBN Increases Interest Rate to 14 Percent to Tackle Inflation

CBN Increases Interest Rate to 14 Percent to Tackle Inflation

The Central Bank of Nigeria (CBN) has increased the interest rate from 12 to 14 percent in order to fight the prevalent rising inflation in the country.

Last week the National Bureau of Statistics announced an inflation rate of 16.5 percent following the increase in the pump price of petrol and the cascading value of the Naira.

The Punch newspaper reports that the the eight-member Monetary Policy Committee of the Central Bank of Nigeria on Tuesday voted 5 to 3 in favour of tightening monetary policy stance, by increasing the monetary policy rate by 200 basis points.

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday announced a tightening of monetary policy stance by increasing the monetary policy rate by 200 basis points from 12 per cent to 14 per cent.

It, however, left the Cash Reserve Ratio and the Liquidity Ratio unchanged at 22.5 per cent and 30 per cent respectively.

The CBN Governor, Mr Godwin Emefiele, who announced the decision of the committee after a two-day meeting said five out of the eight members that attended the meeting voted in favor of monetary tightening.

The remaining three members, according to him, voted to hold the rate at 12 per cent.

The Monetary Policy Rate is the anchor rate at which the CBN, in performing its role as lender of last resort, lends to Deposit Money Banks to boost the level of liquidity in the banking system.

If the apex bank intends to increase the level of liquidity in the economy,it reduces the MPR but increases it when it intends to tighten money supply.

In taking the decision to increase MPR, the governor said the committee was faced with two policy choices whether to stimulate growth or to fight inflation.

He, however, said when considered from the standpoint that the primary mandate of the CBN is to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.

The newspaper reports that if the apex bank intends to increase the level of liquidity in the economy,it reduces the MPR but increases it when it intends to tighten money supply.

The CBN Governor, Mr Godwin Emefiele, who announced the decision of the committee after a two-day meeting said the committee was faced with the option of either stimulating growth or fighting inflation. The committee decided to check inflationary pressures by increasing interest rate.