CBN surprises markets with another interest rate hike

The Central Bank of Nigeria raised its benchmark lending rate by 50 basis points to 27.25% on Tuesday, marking the fifth rate hike this year.

The decision, announced by Central Bank Governor Olayemi Cardoso, came as a surprise to analysts who had expected the rate to remain unchanged due to a recent decline in inflation and relative stability of the naira.

The move signals the bank’s ongoing focus on controlling inflation, despite the country’s worst cost-of-living crisis in decades.

Previous rate hikes this year included increases of 50 basis points in July, 150 in May, 200 in March, and a historic 400 in February—its largest increase in 17 years.

Although inflation had declined for two consecutive months, falling to 32.15% in August, the central bank remains concerned about persistent inflationary pressures.

Mr Cardoso said that while food inflation had moderated, core inflation driven by rising energy prices continues to be a significant concern. This, combined with recent increases in petrol prices, poses ongoing risks to inflation control efforts.

“The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices,” he said.

“The uptrend poses severe concerns to members, as it clearly indicates the persistence of inflationary pressures.”

More Concerns

The rate hikes follow government policy changes that have slashed petrol and electricity subsidies, as well as two naira devaluations since President Bola Tinubu’s administration began.

Analysts suggest that while the central bank’s consistent tightening has helped, core inflation remains high, and the policy rate is still negative.

Experts believe the move may offer some short-term stability for the naira, but higher borrowing costs will likely follow. Concerns over crop damage from floods in the northern region also threaten future food prices, adding to inflation risks.