INTEREST RATE HIKE AND NAIRA STABILITY
The Central Bank of Nigeria (CBN) raised the monetary policy rate (MPR) by 50 basis points (bps) to 27.25% and the cash reserve ratio (CRR) by 200 bps to tackle inflation and stabilize the naira.
This move is aimed at curbing inflationary pressures caused by rising energy prices and attracting foreign inflows to strengthen the naira.
Economic Impact:
Economists have mixed reactions: while the CBN is focused on reducing inflation, some analysts, like Razia Khan from Standard Chartered Bank, express concerns about the effectiveness of these rate hikes, especially given Nigeria's rising core inflation.
The tightening measures will lead to higher borrowing costs, making it harder for businesses to survive amidst already high energy costs.
Money Supply:
CBN Governor Olayemi Cardoso highlighted that Nigeria’s money supply grew significantly from ₦19 trillion in 2015 to ₦54 trillion in 2023, driven largely by government borrowing through the "Ways and Means" policy.
Expert Opinions:
Analysts suggest that while the CBN's intentions are good, addressing inflation also requires fiscal reforms from the government, such as reducing recurrent spending and improving productivity.
Impact on Banks and Borrowers:
The increase in MPR and CRR will raise banks' funding costs and make loans more expensive, potentially discouraging borrowing, slowing economic growth, and moderating inflationary pressure.
This policy, while necessary for price stability, may impose additional burdens on businesses already struggling with rising costs.
The Central Bank of Nigeria (CBN) raised the monetary policy rate (MPR) by 50 basis points (bps) to 27.25% and the cash reserve ratio (CRR) by 200 bps to tackle inflation and stabilize the naira.
This move is aimed at curbing inflationary pressures caused by rising energy prices and attracting foreign inflows to strengthen the naira.
Economic Impact:
Economists have mixed reactions: while the CBN is focused on reducing inflation, some analysts, like Razia Khan from Standard Chartered Bank, express concerns about the effectiveness of these rate hikes, especially given Nigeria's rising core inflation.
The tightening measures will lead to higher borrowing costs, making it harder for businesses to survive amidst already high energy costs.
Money Supply:
CBN Governor Olayemi Cardoso highlighted that Nigeria’s money supply grew significantly from ₦19 trillion in 2015 to ₦54 trillion in 2023, driven largely by government borrowing through the "Ways and Means" policy.
Expert Opinions:
Analysts suggest that while the CBN's intentions are good, addressing inflation also requires fiscal reforms from the government, such as reducing recurrent spending and improving productivity.
Impact on Banks and Borrowers:
The increase in MPR and CRR will raise banks' funding costs and make loans more expensive, potentially discouraging borrowing, slowing economic growth, and moderating inflationary pressure.
This policy, while necessary for price stability, may impose additional burdens on businesses already struggling with rising costs.