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 an increase in the main monetary policy interest rate from 22.75% to 24.75%, which is the second consecutive increase.
According to Reuters, Governor Olayemi Cardoso told a news conference that policymakers believe they need to continue tightening policy to stem runaway inflation.
Minutes of the central bank’s February meeting released last week showed that policymakers advocated aggressive interest rate hikes to curb extremely high inflation. The inflation rate in February reached 31.7%, higher than the 29.9% in January and the highest level since January. Top Level. April 1996.
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
The central bank’s latest minutes showed that members of the Monetary Policy Committee had different views on the drivers of inflation and the naira’s weakness, which influenced their votes.
The Monetary Policy Committee raised interest rates by 400 basis points in February to 22.75%, but committee members believed that the rate hike could be as small as 100 basis points or as large as 450 basis points. David Omojomolo, Africa economist at Capital Economics, pointed out that Governor Cardoso advocates a 425 basis point interest 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.”
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