Nigeria Economic Update (Issue 28)

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided during its 296th meeting to raise the Monetary Policy Rate (MPR) to 26.75%. This represents a 50 basis points increase from 26.25% in May 2024. This increment in MPR reflects the central bank's attempts to control inflation and stabilise the exchange rate through monetary tightening measures. With this new decision, the CBN has increased the MPR by 800 basis points since January 2024. In January, before the hike, the rate was 18.75%. The committee also resolved to keep the liquidity ratio at 30% and the Cash Reserve Ratio (CRR) for merchant and deposit money banks at 14% and 45%, respectively. Despite these steps to control inflation, the Consumer Price Index (CPI) for June 2024 increased to 34.19% indicating that Nigeria's pricing levels are interest insensitive. This suggests that supply-side factors such as insecurity, high cost of energy, and currency depreciation are more responsible for Nigeria's rising inflation rates. Therefore, the CBN, in collaboration with the fiscal side of the government, should prioritise fixing these underlying structural challenges as the MPR has not effectively controlled inflation. Continuous increments in the MPR could have a detrimental effect on the economy through high borrowing costs

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