CBN’s Interest Rate Hikes Unlikely to Slow Nigerian Consumer Inflation, Fitch Says

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Lagos: Women selling yam flour and different goods in the city of Lagos, Nigeria
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Fitch raises its 2022 inflation outlook to 17% for Nigeria

Member of rate-setting committee calls for more hikes

By Emele Onu

Nigeria’s unorthodox monetary policy approach will impede efforts to curb inflation in Africa’s largest economy, Fitch Ratings said.

The Central Bank of Nigeria‘s decision to raise its benchmark interest rate for the first time in almost six years in May, by 150 basis points to 13%, doesn’t signal a fundamental shift in its unconventional approach, the rating company said in a report published Thursday.

“We believe Nigeria’s complex policy approach will be maintained at least until the next presidential election in February 2023,” it said while raising its inflation forecast for the year to 17% from 14.6%.

Inflation in Nigeria hit an 11-month high of 17.7% in May, up from 16.8% in April. That growth trajectory is likely to continue in the near term unless the central bank aggressively hikes interest rates, Festus Adenikinju, a member of its monetary policy committee, said after its May 23-24 meeting, according to a statement published by the bank on Wednesday night.

“I am not sure that a one-off increase in the policy rate would do the magic of reining in inflation,” Adenikinju said. The bank’s next monetary policy meeting is in July.