CBN raises interest rate to 27.25 percent, announces new Cash Reserve Ratio for DMBs, merchant banks

*Dr. Olayemi Cardoso, Governor of the Central Bank of Nigeria, announces the Monetary Policy Committee of the Bank has raised MPR by 50 basis points from existing 26.75 percent to 27.25 percent, while Cash Reserve Ratio is increased by 500 basis points to 50 percent for Deposit Money Banks, and 16 percent for Merchant Banks, restating the need to further diversify the Nigerian economy to boost Foreign Exchange earnings

Gbenga Kayode | ConsumerConnect

The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), at its 297th meeting held Tuesday, September 24, 2024, raised the Monetary Policy Rate (MPR) by 50 basis points from existing 26.75 percent to 27.25 percent.

The Bank also increased Cash Reserve Ratio (CRR) by 500 basis points from current 45 percent to 50 percent for Deposit Money Banks (DMBs), and from 14 percent to 16 percent for Merchant Banks in the country.

ConsumerConnect reports the Bankers’ Bank, however, retained the Liquidity Ratio (LR) at 30 percent and Asymmetric Corridor at +500/-100 basis points around the MPR.

Dr. Olayemi Cardoso, Governor of CBN, who disclosed this development in a circular Ref: CBN/MPC/COM/154/297, issued Tuesday, said the fundamental objective of the MPC meeting was to “review recent economic and financial developments as well as assess risks to the outlook.”

Cardoso stated that the reforms, which the banking and financial sector regulator carried out under his team’s watch in the past year, had restored the Bank’s credibility and boosted stakeholder confidence and trust in the financial sector and the Nigerian economy.

He also said: “We are resolute in our focus to bring down inflation; we will use all tools as the numbers clearly show we are in the right direction.”

Key decisions of the Committee

The Bank said of 11 of the 12 members of the Committee were in attendance at Tuesday’s meeting, and they were unanimous in their decision to further tighten policy, and thus

Decided to raise the MPR by 50 basis points to 27.25 per cent from 26.75 percent; retain the asymmetric corridor around the MPR at +500/-100 basis points; raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis points to 50.00 percent from 45.00 per cent and Merchant Banks by 200 basis points to 16 per cent from 14 percent; and retain the Liquidity Ratio at 30.00 percent Central Bank of Nigeria.

Amon other considerations, Cardoso stated that the Committee noted the moderation in headline inflation year-on-year in July and August 2024.

Besides, the MPC observed the relative stability and convergence in the exchange rate across the various market segments, resulting from the Bank’s tight monetary policy stance.

“This is expected to improve confidence which will enable economic agents to plan in the medium to long term,” said the Governor of CBN.

On curbing upward pressure on energy prices in Nigeria

The communique further noted the Committee, however, was unanimous in recognising that a lot more is required to actualise the Bank’s price stability mandate.

It stated: “The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices.”

The uptrend poses severe concerns to the MPC members, as it clearly indicates the persistence of inflationary pressures.

The governor said: “Members thus, reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices.”

Nigerian banking system remains ‘safe, sound and stable,’ says Cardoso

The CBN Chief also applauded the Federal Government’s efforts at bridging the supply deficit through a duty-free input window for food commodities in the Nigerian economy. According to him, despite economic headwinds in the country in recent times, the Nigerian banking system has remained “safe, sound, and stable”.

The banking sector regulator, he assured, would sustain the supervisory oversight of the industry to strengthen its support of the country’s economy.

Cardoso as well restated the need to further diversify the Nigerian economy to boost Foreign Exchange (Forex) earnings.

He, therefore, expressed optimism that the recent commencement of lifting of refined products from the Dangote Petroleum Refinery and Petrochemicals, in Lagos, would moderate transportation costs and reduce Foreign Exchange pressure in the country’s economy.

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