ABUJA, July 23 (Reuters) – Nigeria’s central bank raised its benchmark interest rate to 26.75% from 26.25% on Tuesday, marking the fourth hike this year.
Thank you for reading this post, don't forget to subscribe!The decision comes as inflation surged to a 28-year high and the naira faced renewed pressure in both official and parallel markets. Central Bank Governor Olayemi Cardoso stated that the increase was necessary to combat rising inflation driven by food and energy costs.
Cardoso emphasized that while monetary policy has been aimed at moderating aggregate demand, the persistent rise in costs has continued to exert upward pressure on prices. The latest hike of 50 basis points follows significant increases earlier this year: 150 bps in May, 200 bps in March, and 400 bps in February, the largest in 17 years.
Analysts had anticipated the 50 bps hike, noting that inflation has risen for the 19th consecutive month, reaching 34.19% in June. David Omojomolo, an economist at Capital Economics, suggested that this might be the final hike in the current cycle but warned of potential further tightening if inflation continues to surprise on the upside.
President Bola Tinubu’s administration recently agreed to raise the minimum wage to 70,000 naira ($44) per month and requested additional spending to cover budget shortfalls, potentially fueling further inflation. Price pressures have also been exacerbated by the government’s cuts to petrol and electricity subsidies and the devaluation of the naira.
Cardoso indicated that interest rates would remain high as long as necessary to curb inflation.
The International Monetary Fund (IMF) has supported the central bank’s recent rate hikes and urged a data-driven approach to future rate adjustments while recommending the buildup of forex reserves.
The IMF maintained its growth forecast of 3.3% for Nigeria’s economy in 2024, up from 2.9% last year, citing growth in the services and trade sectors.
