Seeking to tame rising prices, CBN raises interest rate again

The Central Bank of Nigeria has raised its key interest rate to the highest level in at least a decade as it continues to battle rising prices.

– Key points to note

The bank raised the rate by 0.5 percentage points to 18.5%. The monetary policy rate is the benchmark rate that determines all borrowing rates.

Central banks hope that increasing or tightening the rate makes borrowing more expensive for businesses and individuals, thereby reducing money in the economy and slowing down inflation that has eroded incomes and savings.

The CBN has raised the rate from 11.5% in the last year, but prices of goods and services have continued to rise. Inflation soared to 22.22% in April, the highest in 18 years.

– Learn more

Central bank governor Godwin Emefiele said the CBN’s Monetary Policy Committee saw the continued spike in inflation as “the biggest challenge confronting macroeconomic stability in Nigeria”.

Ten members of the committee voted to raise the rate by 50 basis points while one argued for half of that. “Members were unanimous in their conclusion that the current policy stance is, indeed, impacting targeted parameters and yielding the expected outcome, albeit, somewhat slowly,” he said.

– Why this matters

With the new rate, businesses are expected to pay more for loans and depositors could get a little more as interests on their savings.

The central bank has faced criticisms for raising the rate to fight inflation while at the same time printing money for the federal government to finance budget deficits.

With the government expected to remove fuel subsidy in the coming months, analysts expect inflation to rise even further.

“The increasing likelihood of fuel subsidy cuts and a devaluation of the naira under the incoming Tinubu administration means that the risks are tilted towards further tightening in the coming months,” Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, told Reuters.