Why CBN Raised Interest Rate To 22.75 Percent

Yemi Cardoso, Governor of the Central Bank of Nigeria, has announced that the Monetary Policy Rate (MPR) has been raised by 400 basis points from 18.75 percent to 22.75 percent.

The CBN Chief announced the rise in the inflation rate during the apex bank’s first Monetary Policy Committee (MPC) this year on Tuesday, February 27, 2024.

Interest rate, expressed as a percentage of principal, is the amount charged by a lender to a borrower for the use of assets. It is typically applied to loans, mortgages, or credit cards, representing the cost of borrowing or the return earned on savings and investments.

Damilare Akanni, a financial analyst, told Neusroom that the raise aimed at “reducing borrowing which will lead to a reduction in money supply.” This, he added, is “expected to reduce inflation.”

With inflation at 29.9 percent, Nigeria is witnessing one of its worst increases in the cost of living in the last three decades. Yemi Cardoso, who was appointed by President Bola Tinubu as CBN Governor in September last year, is introducing some measures to salvage the impact of the new administration’s economic reforms.

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Explaining the reason for raising the rates, Yemi Cardoso said that non-monetary factors were driving inflation.

“Previous policy rate hikes have slowed the rise in inflationary pressure but not to a desirable extent,” he said. “Members concluded that inflation could pose more regulatory challenges in the near and medium term if not effectively anchored.”