November 26, 2024

Nigeria’s central bank raised its key interest rate for the sixth time this year on Tuesday, citing renewed inflationary and exchange rate pressures in Africa’s most populous nation.

The decision to raise the Monetary Policy Rate by 25 basis points to 27.50% takes this year’s hikes to a cumulative 875 basis points.

Most economists polled by Reuters had predicted more policy tightening on Tuesday.

Inflation rose for the second straight month to 33.88% in annual terms in October in what has been the country’s worst cost-of-living crisis in decades.

Central Bank of Nigeria Governor Olayemi Cardoso said food and energy prices were key contributors to the uptick in inflation, and that persistent pressure on the country’s naira currency was a concern.

“Members therefore agreed unanimously to remain focused in addressing price developments,” he told a news conference in the capital Abuja.

Cardoso said the central bank was committed to the “war against inflation” and expected the results of its tightening steps would be more visible in the first quarter of 2025.
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“It’s also important for people to understand that there’s a time lag between when you implement policies and when they have an impact,” he said.

Price pressures have been spurred by President Bola Tinubu’s moves to slash petrol and electricity subsidies and devalue the naira.

Those steps are aimed at lifting economic growth and shoring up public finances in Africa’s top oil producer, though the growth rate remains well below a 6% target set by Tinubu.

After Tuesday’s hike, Capital Economics said in a research note that it thought Nigeria’s tightening cycle was over, though it did not expect rate cuts until the second quarter of next year.

Razia Khan at Standard Chartered said a stable naira would be key to containing inflation and if the central bank achieved currency stability there could be little need for more hikes.

REUTERS