Grace Ashiru
Nigeria’s Central Bank has increased its interest rate to 27.5% in its last meeting of the year, following a surge in inflation in October. The Monetary Policy Committee lifted the key interest rate by 25 basis points to tackle the growing inflationary challenges.
The meeting was conducted in light of renewed inflation concerns, as food and core inflation both saw year-on-year increases in October 2024. As a result, all members collectively agreed to prioritize tackling price changes, Governor Olayemi Cardoso explained during a press conference on Tuesday.
The interest rate increase follows a stronger-than-anticipated economic performance in Nigeria for Q3 2024. The country’s GDP expanded by 3.46%, largely fueled by growth in the services sector.
Since the beginning of the year, the MPC has raised the benchmark rate by 8.75 percentage points in an effort to combat inflation. Nigeria’s headline inflation surged to 33.8% in October, driven by fuel price hikes and floods in key food-producing regions that impacted consumer prices. A majority of economists polled by TechCabal had forecasted a 25 basis point increase.
The recent interest rate hike is expected to further enhance the net interest income of Nigerian banks. The country’s four largest banks—Guaranty Trust Holding Co, Zenith Bank Plc, United Bank for Africa Plc, and FBN Holdings Plc—have all reported a more than twofold increase in net interest income.
“The rate hike could result in a rise in loan defaults, which would, in turn, affect the non-performing loans ratio,” said Samuel Onyekanmi, an analyst at Norrenberger.
Analysts caution that Nigeria’s aggressive interest rate hikes, without corresponding fiscal measures, may not be sufficient to control inflation.
“To effectively curb inflation, the government must take action to address the structural weaknesses that have driven inflationary spikes. Without this, the CBN will be fighting an uphill battle, and the struggle against inflation will persist,” said David Omojomolo, Africa economist at London-based Capital Economics.
