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This decision, announced during the maiden Monetary Policy Committee (MPC) meeting under the leadership of Governor Olayemi Cardoso, marks a notable shift in the country's economic strategy.
Alongside the MPR hike, the central bank also opted to raise the Cash Reserve Ratio (CRR) to 45%. The CRR is the portion of deposits that banks are required to hold as reserves either in cash or with the central bank.
By increasing this ratio, the CBN aims to tighten liquidity in the banking system, which could potentially curb inflation and stabilize the currency.
These policy adjustments signal a proactive approach by the CBN to address concerns such as rising inflation and exchange rate volatility.
By raising interest rates and requiring banks to hold more reserves, the central bank aims to manage inflationary pressures while also ensuring the stability of the financial system.
However, the decision to raise interest rates and CRR may have implications for borrowing costs and lending activities in the economy. With a higher MPR, borrowing money from banks could become more expensive, potentially dampening consumer spending and investment.
Additionally, the increased CRR could limit the amount of funds available for banks to lend out, impacting credit availability.
Overall, the move by the CBN underscores its commitment to maintaining price stability and fostering a conducive environment for sustainable economic growth.
As the country navigates through various economic challenges, including the aftermath of the COVID-19 pandemic and fluctuations in global commodity prices, decisive monetary policy actions such as these are crucial for steering the economy towards recovery and resilience.
Source: CBN on X