Economic performance is heavily dependent on monetary policies, and the Monetary Policy Rate (MPR) is one key policy the Central Bank of Nigeria employs.

MPR is the interest rate with which the CBN lends to commercial banks. The commercial banks, in turn, use this rate to benchmark their lending. The CBN sets MPR to control inflation, manage the money supply, and influence the overall economy.

In 2024, the CBN raised MPR five times, with the first one in February. Nigeria’s MPR currently sits at 27.25% after it was raised by 50 basis points in September 2024.

Effects of increased MPR

Curb Inflation

Increasing interest rates can help control inflation by curbing overall demand in the economy. It could also help ease price pressures by reducing consumer spending and slowing down investment.

Impact on investment:

Higher interest rates can discourage investment by increasing the cost of borrowing. Companies may delay or reduce their investment plans, resulting in lower capital expenditures and potentially slowing economic growth over the medium to long term.

Higher interest on Loans and Mortgages:

Increased MPR leads to higher interest rates, which will result in increased monthly payments and overall borrowing costs. Businesses may also experience higher financing expenses, potentially hindering growth.

Exchange rate effects:

Higher interest rates can attract foreign investors looking for better returns on investments in the local currency. This increased demand for the currency may result in a short-term appreciation of the Nigerian naira.

In conclusion, though increased MPR is essential, for Nigeria it remains to be seen if the effects will drive the expected results. After an over 850 basis points increase over the past months, inflation has still risen from 29.9% to 32.15%.