CBN Hikes Interest Rate to 26.75%: 4th Increase in 2024

Nigeria's interest rate hits 26.75% - 4th increase in 2024...

Nigeria's interest rate hits 26.75%, the 4th hike in 2024, as the Central Bank of Nigeria tightens monetary policy to combat inflation, which rose to 34.19% in June.

The Central Bank of Nigeria's Monetary Policy Committee (MPC) has hiked the benchmark lending rate to 26.75%, marking the fourth increase this year. This decision was announced by CBN Governor Olayemi Cardoso following the 296th MPC meeting in Abuja on Tuesday, July 23.

Since the start of the year, the MPC has taken a hawkish approach to tackle inflation, cumulatively raising the Monetary Policy Rate by over 500 basis points. The previous rate hike occurred in May, when the rate was increased to 26.25%. This latest adjustment further tightens monetary policy, aiming to curb inflationary pressures.

Nigeria's inflation rate continued its upward trajectory, reaching 34.19% in June, according to the National Bureau of Statistics (NBS). This represents a 0.24% increase from the previous month's rate of 33.95% in May 2024.

On a year-on-year basis, the June 2024 inflation rate surpassed the June 2023 rate by 11.40 percentage points, highlighting a significant escalation in price growth. Furthermore, the month-on-month inflation rate accelerated to 2.31% in June, outpacing the May 2024 rate of 2.14% by 0.17%. This indicates that the average price level rose at a faster pace in June compared to the previous month.

CBN Governor Olayemi Cardoso has reaffirmed the Monetary Policy Committee's (MPC) commitment to achieving price stability, indicating that further monetary policy tightening is likely until inflation is subdued.

Market expectations had anticipated a rate hike, with various investment firms making predictions. Cowry Asset Management forecasted a 25-50 basis point increase, while Meristem predicted a more significant 100 basis point hike to 27.25%, with other parameters likely remaining unchanged.

The MPC is expected to prioritize inflation control and sustainable capital inflows, crucial for maintaining a stable exchange rate system. To achieve these objectives, a rate hike is likely, as the committee seeks to balance the need for price stability with the requirement for sustainable economic growth.