The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) recently further jerked up its prime lending rate , otherwise called the Monetary Policy Rate, by 400 basis points from from 18.75% to 22.75%.
The MPC adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio (CRR) from 32.5% to 45.0% while keeping the Liquidity Ratio flat at 30%.
At the close of its first meeting for the year attended by all twelve members of the MPC on Tuesday, the Governor of CBN, Olayemi Cardoso told Journalists in Abuja that the decisions were taken to reign in current inflationary and exchange rate pressures.
In his words, “The Committee’s decisions were centered on the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.
“Members were concerned about the persistent rise in the level of inflation and emphasized the Committee’s commitment to reverse the trend as the balance of risk leaned towards rising inflation.”
The CBN Governor said in taking the decisions, the Committee wasn’t unaware the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation.
“Members noted the decision to transit to an inflation targeting framework as essential to addressing the persistence of inflationary pressures in the economy and commended the fiscal authority for their invaluable support.
“In the opinion of the Committee, the options available for decision was to either hold or hike the policy rate to offset the persisting inflationary pressure.
“Considering the option of a hold policy, the evidence revealed that previous policy rate hikes have slowed the rise in inflationary pressure but not to a desirable extent.
“Members considered various scenarios of hold and hike, and concluded that, inflation could become more persistent in the medium-term and thus pose more regulatory challenges if not effectively anchored.
“The balance of the argument thus leaned convincingly in favour of a significant policy rate hike to drive down inflation substantially.” He explained.
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