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CBN increases interest rate to 16.5%, amid concerns of inflation

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THE Central Bank of Nigeria (CBN) has raised its benchmark lending rate to 16.5 per cent in a sustained push to control inflation and ease pressure on the naira.

The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, announced the new rate today at the end of the Monetary Policy Committee (NPC) meeting in Abuja.

Emefiele said previous increases were beginning to yield results and there was need to keep tightening.

He added that the committee also retained the Cash Reserve Ratio (CRR) at 32.5 per cent, and voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR. The liquidity ratio was retained at 30 per cent.

The CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash, while bank’s liquidity ratio is the proportion of deposits and other assets they must maintain to be able to meet short-term obligations.

Earlier in the year, the CBN had raised the CRR to a minimum of 32.5 per cent in a bid to mop-up liquidity.

In October, Nigeria’s inflation rate hit a 17-year high of 21.09 per cent amid skyrocketed food and petrol prices..

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Apart from the rise in food prices, Nigeria has experienced severe flooding that ravaged many Nigerian states and put some parts of the food belt in jeopardy.

This development, in addition to weak production, subsidy payments and surging inflation, had forced the International Monetary Fund (IMF) to revise Nigeria’s 2022 real gross domestic product (GDP) growth forecast down to 3 per cent, from 3.4 per cent.

On the heels of these concerns, the CBN has continued to face the daunting task of reducing the currency in circulation, while curbing the rising cost of goods and services across the country.

As part of measures to control money supply, the apex bank in October announced that it had redesigned all major naira notes and would by December 15, 2022 start circulating them.

Economic watchers say the new lending rate would affect lending to small and medium enterprises.

“We must do everything to ramp up production. I’m concerned about the economy and lending to small-scale businesses and impact on the economy. This is a serious concern,” the publisher of Business A.M., a business and economy publication, Phillips Isakpa, said.

Isakpa, stressing that a poor fiscal side would certainly take its toll on the economy, said, “In the seven and half years of this administration, the fiscal side of the economy has been quite poor, and intervention has increased by CBN, yet the production is weak.”

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Also, Senior Manager, Clients and Industries at Deloitte, Damiloka Akinbami, said that as far as key problems of exchange rate, infrastructure, power sector subsidies, and multiple exchange rate are not addressed, there is little the monetary side can do to support the economy.

“The CBN is struggling to keep inflation, and we are already moving in a vicious cycle of problems. There must be urgency to ramp up production, and ensure SMEs have access to funds to drive production,” Akinbami said.

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Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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