Nigeria hikes rates again amid rampant inflation, currency crisis
TLDR
- Central Bank of Nigeria raises key interest rate by 200 basis points to 24.75% to combat currency crisis and inflation.
- Second consecutive hike in a month following February's 400 basis point surge, in efforts to address rampant inflation.
- Inflation in Nigeria reaches 31.7% in February, the highest level since April 1996, prompting policymakers to advocate for aggressive interest rate hikes.
On Tuesday, the Central Bank of Nigeria implemented a significant increase in its key interest rate by 200 basis points, as Africa's largest economy tries to rebound from a profound currency crisis and escalating inflation.
The CBN revealed that its main monetary policy rate would elevate to 24.75% from 22.75%, marking the second consecutive hike in a month following February's 400 basis point surge. Governor Olayemi Cardoso conveyed during a press conference that policymakers deemed it necessary to persist with tightening measures to address rampant inflation, as reported by Reuters.
Minutes from the central bank's February meeting, published last week, revealed policymakers advocating for a hawkish approach, advocating for aggressive interest rate hikes to curb the soaring inflation. Inflation surged to an annual rate of 31.7% in February, up from 29.9% in January, marking the highest level since April 1996.
Key Takeaways
Over the past year, Nigeria's naira currency has experienced a significant depreciation of approximately 70% against the U.S. dollar, reaching an all-time low of around 1,600 naira per dollar in late February. However, there has been a partial recovery since then, with the currency trading around 1,400 naira per dollar as of Tuesday morning. This rebound followed the Central Bank of Nigeria's announcement that a backlog of $7 billion worth of imports had been cleared. According to the February minutes of the central bank's Monetary Policy Committee, members held differing views on the factors driving inflation and the weakness of the naira, which influenced their voting decisions. These discussions reflect the complexities underlying Nigeria's economic challenges and the diverse perspectives within the policymaking body.
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