Global Economic Outlook (G.E.O)
What to Make of CBN’s MPR Increase to 15.5%. Vol. 106. September 26, 2022.
Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on finance, investment and the economy. In today’s edition, we will be discussing CBN’s MPR increase to 15.5%.
***
What to Make of CBN’s MPR Increase to 15.5%
The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) by 150 basis points to 15.5% from 14%. The MPR is the interest rate at which the CBN lends to the commercial banks and it has a major impact on saving and borrowing by individuals. This will be the third time that the CBN will be raising the MPR in 2022 as it sees it as the best way to tame inflation in Nigeria.
The MPR was not the only metric adjusted by the CBN as the apex body also raised the Cash Reserve Requirement (CRR) from 27.5% to 32.5%. The CRR is a function of the value of deposits being held by commercial banks and increasing the ratio only means that the CBN wants to reduce banks’ ability to lend. This move by the CBN will actually have a negative impact on economic growth as businesses might find it more difficult to borrow but the CBN is clear that they will prefer to keep inflation in check rather that adopt policies to boost economic growth.
While we will leave the discussion on the CRR for another edition, it is important to note that inflation which has been the main target of the CBN over the past Monetary Policy Committee (MPC) meetings has failed to ease off. The inflation rate deteriorated from 19.64% in July to 20.52% in August 2022 continuing its downward spiral since the beginning of the year.
We really do not know what impact the CBN is expecting the increase in MPR to have on inflation but it is as clear as crystal that the poor management of the Foreign Exchange (FX) situation in the country is the major reason why inflation has continued to go higher and the MPR increase might do very little to halt the increase.
If the CBN is expecting people to save more when the cost of goods and services are increasing due to the FX situation, we really do not see that happening. However, the higher cost of borrowing will make it difficult for businesses to access credit and that will have a negative impact on economic growth, which is already fragile at just 3.54% in the second quarter of the year.
The CBN will do better to face the main situation head on rather than dancing around it. A better management of the FX situation is more important than MPR increase to tackle the inflation in Nigeria and there is no need copying the methods in America and the UK as our circumstances are different.
***
The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
***
If you have any questions or you need help on how to manage your personal finance, please send us an email at info@ecofinar.com.
***
Please share this newsletter if you have found it insightful. The Global Economic Outlook (G.E.O) is a publication of Ecofinar and is a weekly newsletter on finance, investment and the economy. You can access past editions here. Follow us on our Facebook and LinkedIn pages and subscribe to our YouTube Channel.
Contact us:
Ecofinar Financial Solutions
Email: info@ecofinar.com
Telephone: +234 8027957343
Twitter: @ecofinar
Website: www.ecofinar.com
All rights reserved by Ecofinar Financial Solutions.