CBN raises interest rate to 16.5% in response to inflation

The policy-setting committee of the Central Bank of Nigeria, on Tuesday, November 22, 2022, raised its benchmark lending rate, from 15.1 percent, to 16.5 per cent, in a sustained push to control inflation and ease pressure on the naira.

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), made this known at the end of the Monetary Policy Committee meeting in Abuja.

Why MPR is important: The monetary policy rate (MPR) is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.

MPR is the interest rate at which CBN lends to commercial banks; it therefore serves as benchmark against which other lending rates in the economy are pegged. A raised MPR signals to commercial banks to accordingly hike their interest rates on loans/advances to their customers, and vice versa.

How this increase affects you: By dis increase, CBN has given Deposit Money Banks the go ahead to increase their lending rates, to possibly be higher than deposit rates.

Banks can also use this to determine fixed deposit rates and normal savings rates on accounts.

Why this could be good: Although, this new monetary rates can affect businesses, manufacturers, and exporters who want to collect loans, the positive side is that it could help slow down inflation.

However, the hike could still fail to stop inflation if other macroeconomic indicators go wrong.

Inflation update: Last week, Nigeria’s inflation rate reached a five-year high at 21.09 percent amid soaring food prices.