Following its third consecutive interest rate hike on Tuesday, the Central Bank of Nigeria (CBN) hinted that it would soon pull back on its rapid monetary tightening.
The CBN increased the benchmark interest rate by 150 basis points to 26.25 percent to control inflation and support the weak naira.
“The end of the tunnel is in sight,” CBN governor Olayemi Cardoso said. “And that’s because, despite the fact that inflation is rising overall, it is actually moderating and slowing down incrementally when it comes to food, core, and headline inflation,” Cardoso added.
“We’ve seen a relatively significant moderation in the rate of increase on those components of inflation for the first time since October.”
“And I believe the CBN’s instruments are effective. There is no magic wand, as I have stated many times and will say once more. These are the kinds of things that require time to process. The impact of initiatives in advanced or emerging countries takes time,” Cardoso stated.
“But at the very least, I’m confident, and the data suggest that we’re starting to see some respite. We will see further positive results from the central bank’s actions in the coming months,” he said.
The headline inflation rate increased from 33.20 percent in March 2024 to 33.69 percent in April 2024. The National Bureau of Statistics (NBS) states that this is an increase of 0.49 percentage points.
According to NBS data, food inflation decreased month over month in April, from 3.6 percent in March 2024 to 2.5 percent in April.
Interest rate increases of 100 basis points were anticipated by analysts.
“The Cardoso over delivered – once again – on market expectations when the Central Bank of Nigeria raised its policy rate by a higher-than-anticipated 150bps to 26.25 percent,” stated Razia Khan, managing director and chief economist at Standard Chartered Bank’s Africa and Middle East Global Research.
“We support the Central Bank of Nigeria’s (CBN) optimistic assessment that the inflation peak is probably close, given the stronger base effect from June and the month-over-month slowdown in inflation,” Khan stated.
“For markets, however, the key question is whether there will be transmission of this new tightening through Open Market Operations (OMOs), with the belief that with the Debt Management Office (DMO) having already attained a substantial amount of its domestic borrowing target, transmission at DMO auctions is not necessarily assured,” she stated.
Nigeria’s capacity to draw more foreign exchange-stabilizing inflows into its local currency markets would be determined by that transmission.
