Nigeria raises the rate to the highest level to stave off inflation

Nigeria raises the rate to the highest level to stave off inflation

By MacDonald Dzerotoi

LAGOS (Reuters) – Nigeria’s central bank on Tuesday raised its key lending rate by 150 basis points to 15.50 percent, the highest level so far and more than expected, continuing its efforts to curb inflation and ease pressure on the currency.

A Reuters poll of economists had expected a much smaller increase of 50 basis points.

But with inflation at its highest level in 17 years, Central Bank of Nigeria Governor Godwin Imphele said that the Monetary Policy Committee should continue to be in a tough stance.

Annual inflation rose for the seventh consecutive month in August to 20.52% from 19.64% in July.

Analysts said Tuesday’s rate hike, the third in a row, means the central bank has achieved a total increase of 400 basis points this year, the most optimistic in a single cycle.

The benchmark interest rate was introduced in 2006.

โ€œThe MPC noted that the strict policy stance will help reinforce the impact of the latest interest rate increases, which has already been reflected in the slowdown in the growth rate of money supply,โ€ Imfiele said at a press conference.

โ€œI also felt that a significant rate hike would slow down capital outflows and potentially attract capital inflows and raise the value of the naira,โ€ Emefiele added.

Dealers said the naira fell to a new low of 725 against the dollar on the black market this week, and within the range of 415-435 on the official market.

Emefiele has increased the cash reserve requirements of banks to withdraw liquidity from the market and stop currency speculation. He said that banks that fail to increase their reserves will be barred from entering the foreign exchange market from Friday.

Economist Viraj Forese of Capital Economics said Imfiele’s comments “suggest that further monetary tightening lies in store”.

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High inflation, weak economic growth and growing insecurity are major issues for voters as Nigeria heads to national elections in February, when incumbent President Muhammadu Buhari will step down.

In response to reporters’ questions, Emefiele refused to rule out further rate hikes to fight inflation.

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