Nigeria Lifts Interest Rates to Record and Signals More to Come

Nigeria raised interest rates for an unprecedented seventh consecutive time to dampen inflation and support the naira, and signaled it’s prepared to hike further after research showed the increase in borrowing costs is yielding results.

(Bloomberg) — Nigeria raised interest rates for an unprecedented seventh consecutive time to dampen inflation and support the naira, and signaled it’s prepared to hike further after research showed the increase in borrowing costs is yielding results.  

The monetary policy committee lifted the benchmark rate by half a percentage point to 18.5%, Governor Godwin Emefiele said in Abuja, the capital, on Wednesday. That’s the highest level since the policy rate was adopted in 2006. The increase matched the median estimate of 14 economists in a Bloomberg survey. 

The naira gained 0.3% after the decision to trade at 463.23 per dollar by 2:57 p.m. in Lagos, the commercial capital. The yield on the nation’s dollar bond maturing in 2031 rose 13 basis points to 12.72%.

Nigeria’s MPC has lifted rates by 700 basis points since May 2022 to contain an inflation rate that’s been at more than double the top end of its 6% to 9% target for 11 months. Research by the central bank showed that if it hadn’t acted, inflation would have been about 800 basis points higher over the past year, Emefiele said. 

Consumer inflation rose at the fastest pace in 18 years last month. The bank will continue to act to rein in price growth, he said.

“I am not going to give anybody an assurance that we are not going to do what we are doing because we are seeing the result of what we are doing,” he said.

The decision to hike was unanimous. Of the 11 MPC members who attended the meeting, 10 voted for a 50 basis-point hike and one favored a 25 basis-point increase.

MPC members were also motivated by the need to close the differential between inflation and the key rate to boost investor confidence, the governor said. The gap is 370 basis points.

The move preempts the possible removal of a costly fuel subsidy by the government that may keep prices elevated. 

Bola Tinubu, who is set to be sworn in as president on May 29, pledged in his campaign manifesto to scrap the subsidy that wipes out almost all of the West African nation’s earnings from oil — its main source of revenue — and allow the market to set prices at the pump.

Africa’s largest oil producer has “reached a point whether we like it or not, we must exit the subsidy,” the governor said.

Still, the impact of the removal may not be as big as previously thought after the opening this week of a mega refinery in Nigeria by Aliko Dangote, Africa’s richest person. The refinery could lower fuel costs by 20%, Emefiele said. 

 

–With assistance from Simbarashe Gumbo, Emele Onu, Renee Bonorchis and Julius Domoney.

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