CBN hikes MPR to 17.5%   

Jan 24 (Lagos) - The Monetary Policy Committee of the Central Bank of Nigeria hiked its key benchmark lending rate (also known as Monetary policy rate or MPR) by 100 basis points to 17.5% in a bid to tackle very high inflation especially in food items. Even after this hike, the interest rate is still sharply below the inflation in the economy which is around 22%. CBN should have shown resolve to hike this rate more sharply because its better to do what is required sooner rather than later. 

The twelve members unanimously voted to raise the MPR.

•   Seven out of twelve members voted to raise MPR by 100bps to 17.5%                    
•   Retain the asymmetric corridor of the MPR at +100 / -700 basis points.  
•   Retain CRR at 32.5%.  
•   Retain liquidity ratio at 30%.   

The Central Bank of Nigeria is still way behind the curve in tackling inflation and has taken a very long time to wake up from its slumber and see where inflation has reached. More hikes will be needed this year to try and tame inflation. 

Central Banks in Europe and Asia have also started hiking their own key benchmark lending rates as they too face high inflation although their situation is not as dire as what we are facing in Nigeria. That means there will be new pressures on the Naira exchange rate and we can expect another Naira devaluation this year probably a few months after the Presidential elections. 

It is interesting to note that the CBN has shown resolve to solve economic problems at the very end of the tenure of this outgoing government. It raises questions as to whether CBN was truly independent throughout the tenure of this Government over the past 8 years because these decisions should have been made years ago when inflation started rising amid currency devaluations and CBN chose to do nothing at that time. Now they are moving like a cheetah that has been released from a cage by its master. 

Therefore we are going to face a situation where cost of borrowing is going to increase and become a problem for small businesses and new businesses. This could have been handled more maturely and not in an ad-hoc fashion that we are witnessing yet again under this CBN leadership. 

In the stock market, this could boost Banking stocks like GTCO , ZENITHBANK as they will charge more for lending funds at the same time. When foreign investors start looking at investing in Nigeria they will look at the best Banks first, especially if the interest rate is going higher. 

reporting for on Tuesday, January 24 2022 from Lagos, Nigeria
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