Nigeria tightens interest rate to combat skyrocketing inflation
The Central Bank of Nigeria increased its benchmark interest rate from 24.75% to 26.25% on Tuesday, May 2021. This marks the third time it has been raised since February this year.
This was announced by the Central Bank governor Yemi Cardoso during a press briefing after a two-day Monetary Policy Committee (MPC) meeting held on Monday, May 20, and Tuesday, May 21.
The MPC, however, maintained the Cash Reserve Ratio (CRR) at 45% for commercial banks and increased the CRR of merchant banks from 10% to 14%.
Ahead of the two-day meeting, Cardoso said in an interview with the Financial Times that the Central Bank would do everything to stabilise Nigeria's economy and inflation levels even if it meant increasing interest rates.
“There is every indication that the MPC would do whatever is necessary. They will continue to do what has to be done to ensure that inflation comes down,” he said.
However, experts lament that consumers and citizens will be the bearers of the burden this rate hike will impose.
According to Chijioke Ekechukwu, an economic expert, who spoke to Xinhua, "This will ultimately be borne by consumers through higher prices of goods and services. There are other drivers of inflation, which are not within the control of the monetary policy."
Uche Uwaleke, a capital market expert also stated that the rate hike "Has the potential of triggering portfolio rebalancing in favour of fixed-income securities." Adding that the over-reliance on the monetary policy rate to battle inflation does not "make any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria."
In April, Nigeria's headline consumer inflation surged to a new 28-year high, reaching 33.69% year-on-year, up from 33.20% in March. This increase marked the rise in inflation for the 16th consecutive month for the country.
The National Bureau of Statistics (NBS) reported that on a year-on-year basis, the headline inflation rate stood at 11.47% points higher than the rate recorded in April 2023, which was 22.22%.
Additionally, on a month-on-month basis, the headline inflation rate in April 2024 was 2.29%, marking a decrease of 0.73% compared to the rate recorded in March 2024 (3.02%).
