Central Bank Of Nigeria Increases Benchmark Interest Rate By 150 Basis Points

The Central Bank of Nigeria (CBN) announced that the benchmark interest rate has been increased by 150 basis points, from 24.75% to 26.25%, amid an ongoing rise in food inflation.

This increase was decided at the end of a two-day Monetary Policy Committee (MPC) meeting held on Monday and Tuesday. The benchmark interest rate, which is also known as MPR (monetary policy rate), is the rate the CBN uses to lend money to customers at a higher rate.

The CBN governor Olayemi Cardoso said that the MPC voted to keep the asymmetric corridor around the MPR at +100 to -300 basis points.

"The committee last reiterated several challenges confronting the effective moderation of food inflation to include rising costs of transportation of farm produce, infrastructure-related constraints along the line of distribution network, security challenges in some food producing areas and exchange rate pass-through to domestic prices for imported food items," he said, Premium Times reported.

Cardoso further explained that the MPC urged that a lot more needs to be done in order to address the security of farming communities to guarantee improved food production in these areas.

He went on to explain that the committee had to decide whether to keep tightening policies or wait to see the impact of previous rate hikes. However, after thoroughly reviewing the risks and the near-term inflation outlook, the committee decided to further tighten the policies to build on the benefits of previous rate hikes.

The CBN governor noted that the next MPC meeting would take place on July 22 and 23.

Some financial experts shared their forecast of an increase in the benchmark interest rate. MD/Chief Business Officer of Optimus by Afrinvest Ayodeji Ebo said, "I think that they will raise the rate by another 100 basis points given the position of the inflation rate."

Whereas, financial analyst at Quantum Economics Olumide Adesina said, "The apex bank will keep rates elevated for the straight 11th time, to amplify the attraction of naira-denominated assets. The highest price is to stabilize the Nigerian FX market and boost confidence in the naira while buying some time for the fiscal side."

The fuel subsidy removal continues to haunt Nigerians as the country's inflation rate jumped 27.33% in October last year. Rising food prices also helped push the rate higher.