Nigeria’s central bank has raised interest rates to an all-time high of 15.5 per cent as it struggles to contain a surge in inflation.
The bank raised its benchmark interest rate by 150 basis points — its third consecutive rate rise — to combat price pressures that have left citizens facing soaring costs for fuel and food.
Central bank governor Godwin Emefiele said after a two-day meeting that the committee could not rule out further tightening, adding that it was “imperative” to rein in price pressures.
“Inflation in the last four months has gone up aggressively. It is difficult for us to not go in the aggressive way we have today. This is the best option at this time,” Emefiele told reporters at a press briefing.
Annual inflation in August was 20.5 per cent. Core inflation, which excludes volatile food and energy prices, is 17.2 per cent. The naira currency had weakened sharply to a fresh low against the US dollar ahead of the interest rate decision, threatening to raise the price of imported products further.
Emefiele said the decision to raise rates was unanimous, but committee members disagreed about the scale of tightening needed. Ten of the committee’s 12 members voted to raise rates by 150 basis points, one voted to lift by 100 basis points and the other a 50 basis points increase.
Analysts had predicted a modest hike of between 50 to 100 basis points.
Virág Fórizs, Africa economist at Capital Economics, a research firm, said Nigeria’s central bank was “reluctantly hawkish” and forecast a lowering of interest rates early next year.
Many economies are struggling because of the strength of the US dollar and the impact of higher US rates on global borrowing costs.
However, Nigeria’s economic woes have been compounded by the lacklustre performance of its oil sector in 2022. Africa’s most populous nation usually earns more than 80 per cent of its foreign currency from crude but has not benefited from rising oil prices this year because of massive theft of an estimated 400,000 barrels per day, under-investment in infrastructure and the cost of fuel subsidies. Nigeria lost its crown as Africa’s largest oil producer to Angola last month when it produced 1.1mn barrels of crude a day, far short of its Opec quota of 1.8mn.
Low oil production has led to a scarcity of US dollars in its import-heavy economy. Imports have become more expensive as businesses raise prices to reflect the high cost of sourcing dollars from the black market where it trades freely and is almost 50 per cent higher than the central bank’s official exchange rate. The Nigerian currency has depreciated almost 25 per cent against the dollar on the black market since the start of the year.
Nigeria’s decision comes amid soaring inflation across west Africa. Ghana is experiencing 33.9 per cent inflation, its highest since 2001, forcing its central bank to raise rates by 300 basis points to 22 per cent at an emergency meeting last month.
Economic insecurity will be a key issue as Nigeria goes to the polls to replace outgoing president Muhammadu Buhari in February.