The Monetary Policy Committee decided to increase interest rates by 150 basis points, raising them from 24.75% to 26.25%. This move, albeit moderate, contrasts with the more aggressive rate hikes witnessed in February and March. The decision reflects a consensus that additional time is required for the earlier rate adjustments to take effect.
In line with this expectation, at least four policy experts polled by TechCabal had anticipated a 100 basis point increase.
“The key focus of the MPC at this meeting remained to achieve price stability to rein inflation. Members observed that while year-on-year inflation rose moderately, the month-on-month measures of food and core declined significantly,” said Olayemi Cardoso, the Central Bank chief. “The tight monetary stance of the bank is yielding outcomes.”
Despite previous rate hikes, Nigeria’s inflation rate has persisted in its upward trajectory. In April, headline inflation surged to 33.69%, accompanied by an unprecedented spike in food inflation. This week’s Monetary Policy Meeting served as a litmus test for the central bank’s determination to persist with rate increases until inflation shows signs of abating.
“The persistent weakness of the Naira will continue to drive higher inflation, necessitating even higher interest rates and leaving a precarious outlook for non-oil sector growth,” a note from Agora Policy, an Abuja-based policy research firm said.
“We need to take some tough decisions on the fiscal side, you can’t hike your way out of this mess,” Prof. Joseph Nnanna, Chief Economist at the Development Bank of Nigeria said.
Price stability remains a persistent concern in the FX market. Despite its status as the best-performing currency in April 2024, the naira has relinquished all of its gains. Heightened attention on “unauthorized FX” trading has prompted the implementation of various policies, yet volatility in the FX market persists.
