Nigeria Delivers Jumbo Rate Hike to Aid Its Battered Naira

Nigeria Delivers Jumbo Rate Hike to Aid Its Battered Naira
A customer counts Naira banknotes at a market in Lagos.

Nigeria’s central bank, in its first policy meeting since July, announced a supersized increase in interest rates to tackle runaway inflation and stem the collapse in the country’s currency. 

Governor Olayemi Cardoso and his other 11 monetary policy committee colleagues on Tuesday raised the benchmark rate by 400 basis points to 22.75%. That exceeded the 21.25% median estimate of 12 economists surveyed by Bloomberg.They also tightened other liquidity measures by increasing the cash reserve ratio to 45% from 32.5% and adjusted the bands around which banks can fund and lend money. Going forward, the cost at which lenders borrow will be 100 basis points above the monetary policy rate and the return on their deposits will be 700 basis points below that benchmark, from 300 basis points previously.

The committee decided to act based on “the current inflationary and exchange rate pressures, projected inflation and rising inflation expectations,” Cardoso told reporters at a media briefing in Abuja, the capital. “Members were concerned about the persistent raise in the level of inflation and emphasized the committee’s commitment to reverse the trend as the balance of risks lean to rising inflation,” he said.

The yield on Nigeria’s dollar bonds due 2029 was little changed at 9.61% as at 2:43 p.m. London time.

Nigeria Raises Rates to Record High | Aims to rein in surging inflation, halt currency slide

“It is a very aggressive surprise,” said Ayodeji Dawodu, director of fixed income for Central and Eastern Europe, Middle East and Africa at Banctrust Investment Bank Ltd. in London. “It will do a lot in terms of raising confidence for the central bank, from both domestic and foreign investors.”

The MPC has now lifted the benchmark by an unprecedented 1,025 basis points since its tightening campaign began in May 2022 to curb price pressures that hit an almost three-decade-high of 29.9% last month and aid the naira.

The currency has lost around 70% of its value against the dollar over the period. The depreciation has largely been due to several devaluations of the currency since June last year as part of efforts to unify Nigeria’s official and unofficial exchange rates in a bid to attract investors and address a dollar shortage.

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The governor said the MPC still believed the naira was undervalued and discussed distortions in the currency market but felt “ongoing reforms in the foreign-exchange market will yield the desired outcome in the short to medium term.”

Reforms include the unification of the foreign-exchange market and the promotion of a willing buyer and willing seller market.

President Bola Tinubu eased currency controls and scrapped fuel subsidies soon after he took office in May to spur economic growth. The moves were cheered by international investors but have triggered protests in several of Nigeria’s 36 provinces amid popular fury at the surging cost of living.

Trade offs

Cardoso said the MPC “acknowledged the tradeoff between the pursuit of output growth and taming inflation, but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation.”

The economy is forecast to grow 3.38% in 2024, compared with 2.7% last year.


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