ABUJA, Sept 24 (Reuters) – In a surprise move, Nigeria’s central bank raised its benchmark lending rate by 50 basis points to 27.25% on Tuesday, defying analyst expectations. The decision was made unanimously by the Monetary Policy Committee (MPC) in an effort to combat persistent inflationary pressures, Central Bank Governor Olayemi Cardoso announced.
Thank you for reading this post, don't forget to subscribe!This rate hike marks the fifth increase this year, following adjustments of 50 basis points in July, 150 bps in May, 200 bps in March, and 400 bps in February—the largest in 17 years. Analysts had widely anticipated no change in the rate, given that inflation had eased for two consecutive months by August and the naira had shown signs of stability due to resumed dollar sales by the central bank.
Governor Cardoso explained that while previous rate hikes had helped moderate inflation, concerns remained. “Headline inflation trended downwards due to a moderation in food inflation, but core inflation is still elevated, driven by rising energy prices,” he said. “The persistence of inflationary pressures continues to be a severe concern.”
In August, annual inflation fell to 32.15%, offering some temporary relief. However, this could be short-lived as recent fuel price increases threaten to exacerbate the ongoing cost-of-living crisis, one of the worst in decades.
Despite the central bank’s tightening measures, core inflation remains stubbornly high. Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered, expressed concerns that the policy rate, though increased, remains insufficient. “When core inflation is still rising and the policy rate is negative, the efforts start to look piecemeal,” she said.
Price pressures have been intensified by the government’s removal of petrol and electricity subsidies and two naira devaluations since President Bola Tinubu took office last year. Additional risks, such as crop damage from flooding in northern Nigeria, may also push food prices higher due to lower harvests.
Financial experts see the rate hike as a bold move. “It will probably help stabilize the naira a little, but the cost of borrowing will definitely rise,” noted Bismarck Rewane, CEO of Lagos-based Financial Derivatives Company.
As inflationary pressures persist, Nigeria’s central bank faces the challenge of balancing inflation control with supporting economic growth during a time of heightened economic strain.
