When you see any Nigerian in a happy mood today, just know that he is doing so to guard against going entertaining depressive thoughts and feeling.Â
You see, for a long time now, Nigerians have been told that the interest rate is being increased to tame inflation, yet the inflation rate has continued to rise.
One cannot but wonder if the crop of people constituted in the Monetary Policy Committee (MPC) are really sure of what they are doing.
At the end of the first Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting under Olayemi Cardos as governor of the CBN, interest rate has been hiked.
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The MPC raised the Monetary Policy Rate (MPR) by 400 basis points (bps) to 22.75%.
Also, it changed the asymmetric corridor from +100/-300 to +100/-700 around the MPR, raising the Cash Reserve Requirement (CRR) from 32.50% to 45% while the liquidity ratio was held constant at 30%.
MPC Raises Interest Rates To tame Inflation RateÂ
According to Cardoso, the hike in interest rate is to help tame the rising inflation rate.
To tame inflation, raising interest rate, which is the cost of borrowing money, is not a bad idea.
In other climes, Central banks lower interest rates, making credit cheap, to boost the economy because people need credit to buy things such as homes and food.
When prices get too high, central banks can raise rates, making it expensive to borrow.
This can slow growth, but it also brings down prices.
Unfortunately, inflation has not responded to this approach in Nigeria, even with the previous marginal increase.
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On inflation, he said the rate of change in prices of goods and services rose to 29.9% in January 2024, from 28.92% in December 2023
Cardoso attributed the hike in inflation to rising costs of energy, high fiscal deficits, and insecurity.
