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CBN increases MPR to 22.75% - See What This Means For The Naira | CBN New Interest Rate

1 month ago   MARKET NEWS   Lagos   685 views Reference: 312

Location: Lagos


So, the Central Bank of Nigeria recently made some monetary policies in their MPC meeting that held earlier today. They increased the monetary policy rate (MPR) by 400 basis points, setting it at a new high of 22.75%. This is a big deal because it's higher than the previous rate of 18.75%, which had been the same since July 2023.

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They also did a couple more things like raising the Cash Reserve Ratio to 45% and keeping the liquidity ratio at 30%. The Asymmetric Corridor got a tweak too, going up to +200/-700.

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Now, let's chat about how this can impact the Nigerian Naira, our currency! Below is the breakdown:

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1. Monetary Policy Rate (MPR) Hike (Up to 22.75%):

- Impact: This higher MPR can make borrowing money more expensive. It's like the interest rate on a loan. When it's higher, businesses and individuals may hesitate to borrow, and existing loans may become pricier.

- Effect on Exchange Rate: If businesses struggle and there's less economic activity, it can influence the demand for the Naira. Reduced demand may lead to a decline in the Naira's value against the US Dollar.

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2. Cash Reserve Ratio (Increased to 45%):
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- Impact: Raising this ratio means banks must keep more money in reserve with the Central Bank. With less money available to lend, there might be a slowdown in spending and investments.

- Effect on Exchange Rate: Reduced lending could lead to less economic activity, potentially affecting the demand for the Naira. This could put downward pressure on its value against the US Dollar.

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3. Liquidity Ratio (Maintained at 30%):

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- Impact: The liquidity ratio influences the amount of liquid assets (like cash) banks must hold. Keeping it at 30% means they have a good amount available for emergencies.

- Effect on Exchange Rate: This might not have a direct impact on the exchange rate, but maintaining a healthy liquidity ratio can contribute to overall economic stability.

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4. Asymmetric Corridor (Raised to +200/-700):

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- Impact: This gives the Central Bank flexibility in adjusting interest rates within certain limits, depending on economic conditions.

- Effect on Exchange Rate: If the Central Bank needs to stimulate economic activity, it might lower interest rates. Conversely, if it wants to control inflation, it could raise rates. These moves could impact the Naira's value against the US Dollar.

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In summary, the combination of these measures could contribute to a more challenging economic environment, potentially affecting the Naira's exchange rate. It's like a balancing act for the Central Bank to maintain stability while dealing with economic challenges.