Nigeria’s central bank raises lending rate for the fifth time in 2024
The Central Bank of Nigeria (CBN) has made a significant decision to raise its Monetary Policy Rate (MPR) by 50 basis points, bringing it to 27.25 percent. This marks the fifth consecutive increase in interest rates for the year 2024, reflecting ongoing concerns about inflation and economic stability within the country.
The decision was announced by CBN governor Olayemi Cardoso during a press briefing following the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday.
The MPC unanimously agreed on this tightening of monetary policy as a response to persistent inflationary pressures that have been affecting the Nigerian economy. Since February 2024, the MPR has seen an increase from 22.75 percent to its current level, indicating an overall rise of 8.5 percent under Cardoso’s leadership.
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The CBN’s rationale for this rate hike includes several critical factors, one of which is inflation control Despite a slight easing in inflation rates over recent months—32.15 percent in August compared to previous higher rates—the CBN remains cautious about underlying inflationary trends driven by rising energy prices and food inflation.
Another factor is economic stability. The central bank aims to stabilize the naira and improve investor confidence through tighter monetary policies, which are believed to be necessary for attracting foreign capital and enhancing competitiveness.
The rate hike comes shortly after a significant cut in interest rates by the United States Federal Reserve, highlighting contrasting monetary policy approaches between Nigeria and developed economies.
The CBN noted that despite these measures, there are ongoing challenges with currency depreciation against major currencies like the US dollar, indicating that further efforts may be needed to stabilize exchange rates.
This move wrongfooted analysts who had expected rates to stay on hold and indicates the bank is prioritizing inflation control over economic growth amid the worst cost-of-living crisis in a generation.
It is the fifth rate hike this year, after increases of 50 basis points (bps) in July, 150 bps in May, 200 bps in March and 400 bps in February which was its largest in around 17 years.
Analysts had expected no rate change after inflation fell for a second consecutive month in August and the naira currency held steady – almost converging on the official and parallel markets – after the bank resumed regular dollar sales to dealers to support the currency.
Price pressures have been spurred by the government slashing petrol and electricity subsidies and twice devaluing the naira since President Bola Tinubu took over last year.
Lingering inflation risk include crop damage due to floods in the north of the country, potentially causing higher food prices due to lower harvest.
