By Okafor Joseph Afam, November 26, 2024

The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) to 27.50%, up from 27.25%, in its ongoing efforts to control inflation and stabilize the naira.

Announced via the CBN’s official account on X (formerly Twitter), the Monetary Policy Committee (MPC) unanimously voted to increase the MPR by 250 basis points.

“The Monetary Policy Committee (MPC) voted unanimously to raise the Monetary Policy Rate (MPR) by 250 basis points from 27.25% to 27.50%,” the statement read.

Other key monetary policy decisions included retaining the Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks. Additionally, the Liquidity Ratio (LR) remains at 30%, with an Asymmetric Corridor maintained at +500/-100 basis points around the MPR.

Implications for Borrowing and Inflation

The hike in the MPR means borrowing costs will rise, making it more expensive for individuals and businesses to access credit. This policy aims to curb inflation, which remains a pressing challenge for Nigeria’s economy. However, inflation—particularly food inflation—has continued to rise despite previous rate increases, raising questions about the effectiveness of monetary tightening.

The CBN also aims to use the higher MPR to strengthen the naira, which has faced consistent depreciation in recent months.

Concerns About Government Borrowing

Despite the increased MPR, it remains unclear whether these policies have a significant impact on government borrowing. State governments, in particular, have increasingly turned to domestic borrowing, adding to Nigeria’s overall debt burden.

CBN’s Position on Monetary Stability

The CBN has repeatedly defended its strategy, insisting that higher interest rates are necessary to achieve economic stability and drive recovery. The bank maintains that its policies are vital to controlling inflation and restoring investor confidence in the Nigerian economy.

Economic experts, however, are divided on the long-term impact of the latest MPR hike, with many calling for complementary fiscal measures to address structural issues underpinning inflation.

As Nigerians brace for the ripple effects of this policy decision, the debate over its effectiveness continues.