In an aggressive bid to combat growing inflation and pressure on the naira, the currency of the nation, the Central Bank of Nigeria, CBN, increased its lending rate to 16.5 percent.
At the conclusion of the Monetary Policy Committee meeting on Tuesday in Abuja, the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, disclosed this information.
The interest rate was raised by the apex bank to 14 percent months ago.
Emefiele claims that the action had the desired effects on the economy of the nation.
According to Mr. Emefiele, the committee also decided to keep the asymmetric corridor surrounding the MPR between +100 and -700 basis points, as well as the Cash Reserve Ratio (CRR) at 32.5 percent. The liquidity ratio was left unchanged at 30%.
He continued by saying that there was a need to temper the growing inflationary fears because the global inflationary pressure was fairly significant.
He added that there were evidence that earlier choices to hold hike rates were starting to bear fruit, but that the MPC did not consider the need to loosen the rates given the current situation.
The bank liquidity ratio is the percentage of deposits and other assets they must retain to be able to satisfy short-term obligations, whereas the cash reserve ratio is the part of a bank’s total customer deposits that must be held with the central bank in the form of liquid cash.
In an effort to mop up liquidity, the CBN increased the cash reserve requirement (CRR) earlier in the year to a minimum of 32.5%.
Although some observers noted that the move also carries the danger of reducing economic growth, the CBN thinks that rising rates will limit the amount of money in the economy and control inflation.
A higher interest rate will increase the cost of borrowing for businesses and could increase the price of products and services for consumers as the holiday shopping season draws near.