“It Is Not Working”: Expert Speaks As CBN Raises Interest Rate Again
- The Central Bank of Nigeria, through its Monetary Policy Committee (MPC), announced a new interest rate
- 150 basic points have increased the new benchmark interest rate as CBN looks to fight inflation
- Uche Uwaleke, professor of finance and capital market, explained in an exclusive chat with Legit.ng the impact of CBN's latest MPC decision
Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.
The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has increased the benchmark interest rate to 26.25% from 24.75%.
The new rate is a 150 basis point increase from the previous rate and the third consecutive hike implemented in 2024 by the CBN to fight inflation.
Source: Getty Images
Olayemi Cardoso, the CBN Governor and MPC Chairman, disclosed the new interest rate at the end of the 295th MPC meeting held in Abuja on Tuesday, May 21, 2024, Punch reports.
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The CBN, however, retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and put the Asymmetric corridor around the MPR at +100 and –300 basis points.
Expert reacts to CBN MPC decision
Reacting to the latest CBN decision, Uche Uwaleke, a finance and capital market professor and former finance commissioner in Imo state, told Legit.ng that the CBN's decision could negatively impact the stock market.
He explained that the interest rate increase, which aims to curb inflation, could prompt investors to rebalance their portfolios in favour of fixed-income securities, leading to a potential downturn in stock market performance.
His words:
"The hike in the MPR by a further 150bps will most likely have an adverse consequence on the equities market given the inverse relationship between interest rates and equities market returns.
"It has the potential of triggering portfolio rebalancing in favour of fixed income securities.
If I were a member of the MPC, I would have voted for a hold position as the aggressive policy rate hike is taking a toll on output. Production is stiffled because of very high cost of funds.
"Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria such as high cost of energy, transport as well as insecurity in the food-belt regions of the country."
CBN releases new BDC operational guidelines
Earlier, Legit.ng reported that the Central Bank of Nigeria (CBN) has announced rules that will end the sale of dollars on the street in Nigeria.
The New guidelines issued for BDC operators aim to streamline their operations and enhance regulatory oversight.
CBN hopes these measures will help stabilise the naira and transparency of the foreign exchange market.
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Source: Legit.ng
