CBN jacks up interest rate to 13 percent

Godwin Emefiele

CBN governor Godwin Emefiele

The Central Bank of Nigeria (CBN) has raised interest rate in the country to 13 percent, showing an increase of 1.5 percent.

The interest rate had been at 11.5 percent initially before the hike by the apex bank on Tuesday.

The bank’s governor, Godwin Emefiele, who announced this in Abuja on Tuesday at a news conference, said the move was to halt the rising inflation in the country.

When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. A rising interest rate will halt borrowing.

Emefiele said the Monetary Policy Committee (MPC) took the decision because it suspected that there might be an aggressive accretion of inflation, which needed to be halted.

According to him, to prevent the looming inflation, the MPC had to increase the monetary policy rate by 150 basis points above the previous rate.

Nigeria’s inflation currently stand at 16.82 per cent in April, recording the highest jump in eight months, according to the National Bureau of Statistics (NBS).

The consumer price index, which measures the rate of increase in the price of goods and services, jumped amid increases recorded in food and energy prices.

The NBS said on Monday that the rate is 1.3 per cent points lower compared to 18.12 per cent recorded in April 2021.

However, the new annual rate is the highest since September 2021 (16.63 per cent).

The move surprised analysts and traders who expected the Monetary Policy Committee (MPC) to keep the rate on hold.

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Six members of the MPC voted to increase the main lending rate by 150 basis points, four of them by 100 basis points and one by 50 basis points.

“(MPC members) felt that tightening will help rein in inflation before it assumes a galloping trend,” Emefiele said.

“The committee decided to raise monetary policy rate for the first time in two and a half years to rein in the current rise in inflation as members were of the view that the continued uptrend may adversely impact growth.”

Food and energy prices are rising in Africa’s most populous country after Russia’s invasion of Ukraine pushed up oil prices and disrupted supplies of commodities like corn and wheat.

The rate hike sent the yield on Nigeria’s longest 30-year bond soaring 75 basis points to 13.8%.

Overnight lending rates climbed 200 basis points to 14% while the main share index fell to a two-week low.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said the rate increase raised questions about whether this could be a precursor to a change in the central bank’s policy on foreign exchange.

“This could be the most important signal yet of eventual FX policy intentions … but we will not really know until we see whether and how much market rates reprice,” she said.

The naira recovered from a record low of 609 on the black market to 606 naira against the dollar after the hike but it weakened to 443.50 naira on the official market from 413.80 naira and later traded at 417 naira.

The central bank governor, who ended his presidential ambition on Monday, said the economy was expected to expand 3.25% this year, lower than the federal government’s projection of 4.2% growth.

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