Governor Godwin Emefiele said on Tuesday that the Central Bank of Nigeria has hiked its benchmark interest rate to 13% from 11.5 percent, shocking economists who had expected the Monetary Policy Committee (MPC) to maintain the rate constant.
In April, inflation accelerated to 16.82 percent, its highest in eight months, amid a shaky economic recovery, according to Emefiele during a news conference.
After Russia’s invasion of Ukraine pushed up oil prices and interrupted supplies of commodities like corn and wheat, food and energy prices in Africa’s most populous country are soaring.
Six members of the MPC voted to raise the main lending rate by 150 basis points, four by 100 basis points, and one by 50 basis points, according to Emefiele.
It is the largest rate increase since the central bank raised rates by 200 basis points in 2016.
“(MPC members) believed that tightening would assist to contain inflation before it accelerated,” Emefiele added.
“The committee resolved to raise the monetary policy rate for the first time in two and a half years to contain the present rise in inflation, as members believed that the upward trend could harm growth.”
Traders reported the rate hike pushed the yield on Nigeria’s longest 30-year bond up 75 basis points to 13.8 percent.
Standard Chartered’s top economist for Africa and the Middle East, Razia Khan, said the rate hike raised concerns about whether it was a sign of a shift in the central bank’s foreign exchange policy.
“This could be the most crucial indication yet of future FX policy intentions,” she added, “but we won’t know for sure until we see whether and how much market rates reprice.”
Tightening policy might assist the government control domestic borrowing, which has seen its debt payment costs rise dramatically in recent years, according to Emefiele.
The central bank governor, predicted that the economy will grow 3.25 percent this year, lower than the federal government’s forecast of 4.2 percent.