By Ossom Raphael

The Central Bank of Nigeria (CBN) on Tuesday raised its main lending rate by 150 basis points to 15.50%, its highest level yet and more than forecast, forging ahead with efforts to rein in inflation and ease pressure on the currency.

The lending rate decision comes after annual inflation rose for a seventh straight month in August, to 20.52% from 19.64% in July.

The decision by the CBN’s Monetary Policy Committee (MPC) was the third time in a row the Apex bank would raise its interest rate.

With the inflation at its highest in 17 years, the CBN Governor Godwin Emefiele at the end of the meeting said the Committee had to continue with an aggressive stance.

According to the CBN governor, using the interest rate hike is the easiest and most preferred option, stressing that the option has been adopted globally.

“If you want to rein in inflation, the option is to raise the interest rate to a level that is equal or possibly higher than the inflation rate, so that inflation rate must lag policy rate,” Emefiele told a news conference

He further stated that if the inflation rate does not lag the interest rate, it becomes a negative interest rate and a disincentive to investors.

The Apex bank Governor is of the view that as long as inflation keeps rising, not raising interest rates will retard growth and leave the people poorer than they could have been.

“Therefore it is imperative that you must raise interest rate in order to rein in inflation,” Emefiele further said.

He, however, admitted that though raising interest rates may retard growth all the same but the reason for raising interest rates is not to help slow down inflation but compensate for an aggressive rise in inflation.

According to him, if the CBN does not raise the rate, consumption and expenditure would be affected because the purchasing power of individuals would be eroded or dissipated.

He added that the quantity of goods people will be able to buy would also shrink and this will invariably increase the level of poverty.

He, therefore, concluded thus: “You don’t have a choice but to raise interest rates.”

The Apex Bank adjusted Asymmetric Corridor at +100 & -200 basis points around the MPR (interest rate), raised the Liquidity Ratio to 30 per cent and also increased the Cash Reserve Ratio (CRR) of banks to a minimum of 32.5 per cent and stressed that commercial banks will be debited from their reserves by Thursday at the most.