The Central Bank of Nigeria raised interest rates to 27.5% at its final meeting of the year after inflation accelerated in October. The Monetary Policy Committee raised the key interest rate by 25 basis points.
“The meeting’s deliberations came against the backdrop of renewed inflationary pressures due to increases in food and core policy inflation in October 2024 compared to the same period last year. “Members have therefore unanimously decided to remain focused on price developments,” Governor Olayemi Cardoso said at a press conference on Tuesday.
The rate hike comes after the Nigerian economy posted better-than-expected growth in the third quarter of 2024. Nigeria’s GDP grew by 3.46%, driven by the services sector.
The MPC has raised its key interest rate by 8.75 percentage points since the start of the year to curb inflation. Headline inflation in Nigeria rose to 33.8% in October as higher fuel prices and flooding in food-producing regions hit consumer prices. Most economists surveyed by TechCabal had expected a 25 basis points increase.
The new rate hike could further boost net interest income for Nigerian banks. The country’s four biggest banks — Guaranty Trust Holdings, Zenith Bank, United Bank for Africa and FBN Holdings — all reported more than doubling of net interest income.
“The hikes could lead to higher loan default rates and impact non-performing loan ratios,” said Nollenberger analyst Samuel Onyekanmi.
Analysts have warned that Nigeria’s aggressive rate hikes without complementary fiscal efforts may not be enough to contain inflation.
“For inflation to finally be resolved, the government needs to step in and mitigate the structural vulnerabilities that caused the inflation spike. Unless that happens, the CBN will simply be going against the flow and there will be no end to the fight against inflation in sight,” said David Omojomoro, Africa economist at London-based Capital Economics.
