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In a decisive move to combat surging inflation, Nigeria’s Central Bank raised its benchmark interest rate to 27.5% at its final monetary policy meeting of the year.
This marks a 25 basis point increase, capping a year in which the bank has aggressively hiked rates by 8.75 percentage points.
Central Bank Governor Olayemi Cardoso announced the decision during a media briefing on Tuesday, citing “renewed inflationary pressures” as the main driver. “The considerations of the meeting were held on the backdrop of rising food and core inflation in October 2024. Members unanimously agreed to remain focused on addressing price developments,” he said.
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The hike comes as Nigeria battles headline inflation that surged to 33.8% in October, driven by higher fuel costs and flooding in key agricultural areas, which disrupted food supplies. Despite these inflationary pressures, Nigeria’s economy showed unexpected resilience, with GDP growing by 3.46% in Q3, led by a robust services sector.
The interest rate hike could bolster the net interest income of major Nigerian banks, which have already reported substantial growth. Guarantee Trust Holding Co., Zenith Bank Plc, United Bank for Africa Plc, and FBN Holdings Plc all reported a doubling of net interest income.
However, analysts warn that the tighter monetary policy may increase loan defaults. “The hike could lead to an increase in the loan default rate, thereby impacting the non-performing loans ratio,” said Samuel Onyekanmi, an analyst at Norrenberger.
While the central bank’s aggressive rate hikes aim to curb inflation, economists caution that monetary policy alone may not suffice.
“To put inflation to bed for good, the government needs to step up and reduce the structural vulnerabilities that have brought about inflation spikes,” said David Omojomolo, Africa economist at London-based Capital Economics. “Without these efforts, CBN is simply swimming against the tide, and the inflation fight will have no end in sight.”
The Central Bank’s actions highlight the delicate balance Nigeria must maintain between controlling inflation and fostering economic growth as the country grapples with ongoing economic challenges.
