Updated: Why CBN Raised Interest Rate To 17.5%, Highest In 22 Years

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) increased the interest rate to 17.5 per cent on Tuesday, 24 January 2023.

This was disclosed by the central bank governor, Godwin Emefiele, during the post-MPC meeting held on Monday and Tuesday.

The 17.5 per cent interest rate is the highest in 22 years, as the central bank continues its push against inflation, which soared to 21.34 per cent in December 2022.

Recall that in November 2022, when the MPC held its last meeting last year, the interest rate was also increased to 16.5 per cent, from 15.5 per cent.

Prime Business Africa understands that the recent increment will raise the cost of borrowing, and discourage companies from seeking credits to finance their operations as revenue drops due to low demands on the back of the high cost of goods driven by inflation.

The decision by the CBN is expected to force companies to reduce the prices of goods to lure customers back to save revenue as they can’t access affordable credits to fund their operations.

Although the rise in interest rate will further contribute to an increment in prices in the short term, it will rein inflation in the long term as companies find it increasingly difficult to borrow at an exorbitant rate.

Nigeria’s central bank raised the interest rate due to concern over continued aggressive movement in inflation that has withstood three other increases in the interest rate before the November decision.

Note that after the hike in November last year, inflation dropped to 21.34 per cent in December 2022, down from 21.47 per cent recorded in November last year, indicating that the measures of the CBN are slightly yielding results.

Meanwhile, the central bank retained the asymmetric corridor at +100/-700 basis points around the Monetary Policy Rate (MPR).

Also, the financial regulator retained the Liquidity Ratio at 30 per cent after the meeting.