The recent increase in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) has raised a lot of discussion in the country's financial sector. The MPR is the interest rate at which the CBN lends money to commercial banks in the country. It is one of the key tools the central bank uses to regulate the money supply in the economy and control inflation. The CBN announced the increase in the MPR by 50 bp from 17.5% to 18% on the 21st of March in its 2023 Monetary Policy Committee (MPC) meeting. This would be a cumulation of 150bp in the space of 3 months. This move was aimed at curbing inflation which had risen from 21.82 percent to 21.94 percent
The increase in the MPR is a signal to commercial banks to raise their lending rates, which will, in turn, discourage borrowing and reduce the amount of money in circulation. This will decrease aggregate demand, which can help reduce inflationary pressures in the economy. However, the increase in the MPR may . Higher interest rates can make borrowing more expensive for businesses and consumers, which can slow down economic growth. This could also lead to a decrease in investment and job creation as businesses become less willing to take on new projects or expand their operations.
So what?
This increase in the MPR comes a few months after the first-rate of the year, which is somewhat unprecedented, but needless to say, it is quite pertinent for the situation at hand. With the current tousle on the naira redesign, analysts have suggested the possibility of an increase in inflation as old naira notes deposited would be back in circulation alongside the new notes that were dispensed. Although this has not been immediately seen, a proactive move by the CBN is exactly what the economy needs at a time like this. However, as we mentioned in our last article on MPR’s hike, more structural issues would still need to be addressed to curb inflation.