Nigeria’s Central Bank has increased its benchmark interest rate to 27.5%, a 25-basis-point hike, during its final monetary policy meeting of the year. The decision follows a sharp rise in inflation, which climbed to 33.8% in October.
Governor Olayemi Cardoso explained the move during a Tuesday briefing, stating, “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.”
The hike comes on the heels of stronger-than-expected economic growth in Q3 2024, where GDP rose by 3.46%, largely driven by the services sector.
This marks a cumulative 8.75-percentage-point increase in the interest rate this year as the Central Bank intensifies efforts to rein in inflation. Rising fuel prices and flooding in agricultural regions have pushed up consumer prices, further exacerbating inflationary challenges.
The rate increase is expected to boost net interest income for major Nigerian banks, including Guaranty Trust Holding Co., Zenith Bank Plc, United Bank for Africa Plc, and FBN Holdings Plc. These institutions have already reported more than double growth in net interest income this year.
“[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.
No comments:
Post a Comment