On Tuesday, the Central Bank of Nigeria (CBN) made an aggressive move to combat the nation’s rising inflationary pressure by increasing its benchmark lending rate to 18 percent.
The decision was made at the end of the two-day Monetary Policy Committee (MPC) meeting held in Abuja, which was chaired by CBN Governor, Godwin Emefiele.
The MPC also voted to maintain the asymmetric corridor at +100 and -500 basis points around the MPR, while keeping the Cash Reserve Ratio (CRR) and Liquidity Ratio at 32.5 percent and 30 percent, respectively.
This move comes after the MPC raised the benchmark lending rate from 16.5 percent to 17.5 percent in January. The nation’s inflation rate rose to 21.91 percent in February, up from 21.82 percent in January, due to the scarcity of the redesigned Naira notes, according to the nation’s statistics bureau.
What Does It Mean For The Economy?
If the Central Bank of Nigeria (CBN) increases interest rates to 18%, it means that borrowing money from commercial banks will become more expensive, which can have both positive and negative impacts on the economy.
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On the positive side, higher interest rates may help to control inflation by reducing the amount of money circulating in the economy, which can help to stabilize the currency and encourage foreign investment. Additionally, higher interest rates can encourage people to save more, which can lead to increased capital formation and investment in the long term.
On the negative side, higher interest rates can also slow down economic growth by reducing consumer spending and business investment. Higher borrowing costs can also make it more difficult for businesses to expand or invest in new projects, which can lead to job losses and decreased economic activity.
Overall, the impact of the interest rate hike on the economy will depend on a range of factors, including the current state of the economy, the level of inflation, and the degree of confidence that consumers and businesses have in the government’s economic policies.
