Nigeria’s Central Bank has raised its key interest rate to the highest level since 2006, in a bid to contain inflation and attract foreign investors. The bank has increased its benchmark rate by 650 basis points since May 2021, with Tuesday’s hike being the sixth consecutive one, bringing the rate to 18%. The move comes as the inflation rate in Nigeria remains at more than double the top end of the bank’s target range of 6% to 9%.
Governor Godwin Emefiele, in a statement made in the capital, Abuja, stated that the bank plans to “continue to tighten, albeit moderately” until the differential between inflation and policy rates is closed. The policy rate differential between inflation and the key interest rate is now 390 basis points.
Out of the 12 members of the bank’s Monetary Policy Committee, 10 voted for a 50 basis-point hike, with one supporting a 25 basis-point increase, and the remaining members opting for no change. This is the first time in six meetings that the decision to increase the rate wasn’t unanimous.
The move by the central bank comes as Nigeria is one of the African markets affected by a sustained selloff of their debt, as deepening concerns over the global financial system prompt investors to cut risk in a region brimming with distressed credits. Despite this, Governor Emefiele said that Nigeria’s financial system remains resilient, due largely to stringent prudential guidelines put in place by the central bank, leading to a strong buildup of reserves.
The bank’s Monetary Policy Committee forecasts the economy of Africa’s most populous nation to expand by 3% this year, compared to the 2.9% projected at its previous meeting, despite the first quarter’s economic growth being crimped by the central bank’s chaotic rollout of a plan to replace old naira notes, which resulted in cash shortages that may have reduced the nation’s 198 trillion-naira ($430 billion) nominal gross domestic product by 7.6%.
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