Central Bank Jacks Up Benchmark Rate to 12%

Following wide speculation that the Nigerian Monetary Policy Committee would raise rates at the emergency meeting scheduled for 10am this morning, the MPC has gone ahead to do just that.
However the bank surprised analysts, raising the rate far higher than most had expected.

The Central Bank has reviewed the key lending rate upwards by 2.75% to arrive at 12%. This was a drastic increase taken in order to defend the Naira which had been in free fall against the United States Dollar and currencies of other major trading partners.

The recent depreciation of the Naira along with a controversial government policy to cancel a fuel subsidy program are seen as big threats to the country’s economic target to keep inflation in the single digits.

“The committee recognised the need to remain very clear on the bank’s primary mandate and maintain the credibility it has established so far by sending strong signals on price and exchange rate stability,” CBN Governor Lamido Sanusi said.
“In the face of the spectre of declining oil prices, declining foreign reserves, increased demand for foreign exchange, fiscal dominance and capital flow reversals, monetary policy must bear a larger burden of economic adjustment in the short-term,” he added.

Demand for the dollar at the CBN auction today was almost double the CBN offer of $ 400 Million.
The Bank also raised the cash-reserve ratio by 400 basis points to 8%.