A pedestrian in the Lagos Island area of Lagos, Nigeria, on Monday, November 14, 2022.
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Nigeria’s central bank raised key interest rates by 200 basis points on Tuesday as Africa’s largest economy looks to recover from a historic currency crisis and soaring inflation.
The central bank announced that it would raise the main monetary policy interest rate from 22.75% to 24.75%. This is the second consecutive increase after a 400 basis point increase in February.
According to Reuters, Governor Olayemi Cardoso told a news conference that policymakers believe they need to continue tightening policy to stem runaway inflation.
David Omojomolo, Africa economist at Capital Economics, said the latest move was “further evidence that officials are working aggressively to tackle inflation and restore damaged credibility”, although the increase was smaller than previously increase.
“This may indicate that some MPC members are concerned about the impact of tightening monetary policy on economic growth,” he said in a note on Tuesday.
“That said, officials raised rates more than expected, suggesting the fight against inflation is taking priority. Inflation was 31.7% in February and will continue to rise in the coming months.”
The minutes of the central bank’s February meeting released last week showed that policymakers advocated a tough stance of radically raising interest rates to curb the extremely high inflation rate. The inflation rate in February reached 31.7%, higher than the 29.9% in January. It is also Historically high levels. Since April 1996.
Capital Economics expects further tightening as Governor Cardoso needs to end the country’s inflation and currency crisis.
“Before the rate hike cycle ends, we have planned a further 100 basis points of rate hikes at the next meeting in May and July. Policy will likely remain unchanged for the remainder of the year,” he added.
currency crisis
The Nigerian naira currency has plunged about 70% against the U.S. dollar in a year, hitting a record low of 1,600 naira to the U.S. dollar in late February.
However, the exchange rate had regained some of its losses and was trading around 1,400 naira as of Tuesday morning after the CBN announced that a $7 billion import backlog had finally been cleared.
Ibadan, Nigeria – February 19, 2024: Demonstrators protest against rising prices and difficult living conditions in Ibadan on February 19, 2024.
Samuel Alabi | AFP | Getty Images
Minutes of the central bank’s February meeting showed that members of the Monetary Policy Committee at the time had different views on inflation drivers and the weak naira, which affected their votes.
Although the Monetary Policy Committee raised interest rates by 400 basis points to 22.75% in February, members of the committee still have debates as small as 100 basis points and as large as 450 basis points. Omojomolo noted before Tuesday’s decision that Governor Cardoso had advocated a 425 basis point rate hike.
He added: “Doves warn of the risks of overly aggressive rate hikes and the structural nature of inflation, while hawks emphasize the need to restore central bank credibility and push real interest rates into positive territory to further fuel further growth through additional foreign investment. Support Naira.”
