The Central Bank of Nigeria took decisive action on Tuesday by implementing another significant interest rate hike in response to persistent inflationary pressures, reaching a 28-year high in April.
Central Bank Governor Olayemi Cardoso revealed that the Monetary Policy Committee (MPC) faced a pivotal choice between maintaining or increasing rates, ultimately opting for a hike to uphold price stability. The Monetary Policy Rate surged by 150 basis points to 26.25%, marking the third increase this year following hikes of 200 bps in March and 400 bps in February.
In a press conference, Cardoso emphasized the imperative of further tightening policy to amplify the gains from prior hikes, citing a balance of risks.
Economists had anticipated another hike given Nigeria’s soaring inflation and currency volatility. Danny Greeff, an analyst at ETM Analytics, underscored the necessity of bold policy action to bring real rates closer to positive levels and stem the depreciation of the naira.
April witnessed a staggering year-on-year inflation rate of 33.69%, reminiscent of mid-1996 levels. This surge was fueled by the government’s reduction of petrol and electricity subsidies and dual devaluation of the naira since President Bola Tinubu assumed office last year. Analysts predict continued pressure on the central bank to curb inflation, potentially leading to further rate hikes.
The International Monetary Fund has commended the central bank’s previous hikes, advocating for data-driven decisions. Cardoso has pledged to combat inflation, stabilize the naira, and depart from the unconventional policies of his predecessor, who blurred the lines between monetary and fiscal measures.
The Nigerian government faces additional challenges, including reviving the vital oil sector and addressing widespread insecurity, which has undermined governance across the nation.
The central bank’s upcoming rate-setting meeting is slated for July.
