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HomeTop NewsCBN moves to curb inflation, hike interest rate to 14%

CBN moves to curb inflation, hike interest rate to 14%

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By Oludare Mayowa

The Central Bank of Nigeria (CBN) on Tuesday hiked its monetary policy rate (MPR), which benchmarks the interest rate in the economy to 14 per cent from 13 per cent in a bid to curb inflation and avert economic recession.

The latest National Bureau of Statistics (NBS) consumer index report released on Monday showed that the inflation rate rose to 18.6 per cent in June from 17.17 per cent in the previous month.

At the end of the two-day rate-setting MPC meeting in Abuja, CBN Governor Godwin Emefiele told journalists that the hike in interest rate would help tame rising inflation.

The regulatory bank had at its May MPC meeting hiked the benchmark interest rate to 13 per cent from 11.5 per cent to slow down the surging inflation rate by restricting credit to the economy.

Emefiele said the committee members voted to hike the rate by 100 basis points and retained the asymmetric corridor at +100 and -700 basis points around the MPR and liquidity ratio at 30 per cent.

Emefiele said all members of the 11-member monetary policy committee (MPC) voted for rates to rise at the latest meeting, although they differed over the size of the increase. Six MPC members, a majority, voted for a 100 basis point increase.

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“Members were unanimous that given the aggressive increase in inflation, coupled with the resultant negative consequences, particularly on (the) purchasing power of the poor, … there is a need to continue to tighten (policy)” said Emefiele.

“However the policy dilemma was hinged around the level of tightening needed to rein in inflation without dampening manufacturing output, which could result from the higher cost of borrowing.”

Emefiele said if inflation continued on an upward trajectory the bank would continue with its tightening policy.

The country’s naira currency was quoted at a new record low on the black market after the rate decision was announced, traders said.

Inflation in Nigeria is being driven by rising prices of staples like bread, rice and maize and the cost of diesel, which is widely used to generate power.

The MPR is the baseline interest rate in an economy, every other interest rate used within an economy is anchored on the CBN rate.

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