In its final meeting of the year, Nigeria’s Central Bank has raised interest rates to 27.5% following a surge in inflation in October. The monetary policy committee (MPC) increased the benchmark interest rate by 25 basis points.
Governor Olayemi Cardoso stated during a media briefing on Tuesday;
The considerations of the meeting were held against the backdrop of renewed inflationary pressures as the headline food and core measures rose year on year in October 2024. Members therefore agreed unanimously to remain focused on addressing price developments.
This rate hike follows an unexpected acceleration in Nigeria’s economy in the third quarter of 2024, with the GDP growing by 3.46%, primarily driven by the services sector.
Since the beginning of the year, the MPC has raised the benchmark rate by a total of 8.75 percentage points in an effort to curb inflation. Nigeria’s headline inflation rate increased to 33.8% in October, influenced by a rise in fuel prices and flooding in food-producing regions, which affected consumer prices.
The new interest rate hike is expected to further boost the net interest income of Nigerian banks. The country’s four largest banks—Guaranty Trust Holding Co., Zenith Bank Plc, United Bank for Africa Plc, and FBN Holdings Plc—have all reported that their net interest income has more than doubled.
“[The hike] could lead to an increase in the loan default rate, thereby impacting the non-performing loans ratio,” commented Samuel Onyekanmi, an analyst at Norrenberger. However, analysts caution that Nigeria’s aggressive rate hikes, without complementary fiscal measures, may not be sufficient to control inflation.
“To put inflation to bed for good, the government needs to step up and reduce the structural vulnerabilities that have brought about inflation spikes. If that doesn’t happen, CBN is simply swimming against the tide, and the inflation fight will have no end in sight,” said David Omojomolo, Africa economist at London-based Capital Economics.
