Nigerian Central Bank Hikes Key Interest Rate Just Days After Naira Plunges to New Low

Nigerian Central Bank Hikes Key Interest Rate Just Days After Naira Plunges to New Low

Following the newest assembly of the financial coverage committee, the Central Bank of Nigeria says it has hiked the financial coverage fee to fifteen.5%. By rising the important thing rate of interest by 150 foundation factors, the central financial institution hopes to “slender the damaging actual rate of interest hole and rein in inflation.” The fee enhance got here simply days after the naira’s parallel trade fee in opposition to the greenback plunged to a brand new low.

Narrowing the Negative Real Interest Rate Gap

According to the Central Bank of Nigeria (CBN), members of the financial institution’s financial coverage committee (MPC) have voted “unanimously to lift the coverage fee to slender the damaging actual rate of interest hole and rein in inflation.” Following the vote, Nigeria’s key rate of interest — the financial coverage fee (MPR) — now stands at 15.5%, up from 14%.

In a press release, the CBN mentioned the choice to extend MPR by 150 foundation factors was made as a result of members of the MPC felt that any try to loosen the coverage fee can be detrimental.

At this [MPC] assembly, the choice to loosen the coverage fee was not thought-about as this might be gravely detrimental to reining-in inflation … The Committee thus voted unanimously to lift the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR). Ten members voted to lift the MPR by 150 foundation factors, one member by 100 foundation factors, and one other member by 50 foundation factors.

Nigeria’s inflation fee, which has now grown by 280 foundation factors in simply 4 months, stood at 20.52% in August 2022. To cease it from rising additional, the MPC mentioned it’s needed for the CBN to make sure that “vital focus [is] be given to taming inflation.”

Meanwhile, the financial institution’s determination to hike the MPR got here simply days after the Nigerian foreign money’s trade fee in opposition to the U.S. greenback plunged to a brand new all-time low. According to a Bloomberg report, the naira’s parallel market trade fee had dropped from 715 naira for each greenback to 720 naira per greenback. On the formal market, one U.S. greenback was shopping for slightly below 440 naira.

Following the naira’s newest vital depreciation, the unfold between the foreign money’s official and parallel market trade fee has now widened to over 280 naira.

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