(Bloomberg) -- The Central Bank of Nigeria lifted its key interest rate for a 12th straight time and said it remains committed to reining in inflation.
The monetary policy committee raised the benchmark rate by 50 basis points to 26.75%, Governor Olayemi Cardoso said at a press briefing in the capital, Abuja, on Tuesday. The median estimate of six economists in a Bloomberg survey was for a 75 basis-point increase to 27%.
The central bank also widened its “asymmetric corridor,” lifting the cost at which lenders can borrow to 500 basis points above the policy rate, and the return on their deposits was set at 100 basis points below the benchmark.
“The committee reemphasized its commitment to stay on course with this tightening cycle in view of the urgent need to address inflationary pressures,” Cardoso said. “Inflation really and truly is having a major impact on our economy, purchasing power is getting eroded, people are being pushed into different categories of poverty and it is in their own interest that we are able to tame the scourge of inflation.”
Six of Nigeria’s eurobonds were among the top 20 performers in a Bloomberg index of emerging and frontier-market sovereign debt. The price for securities due in February 2038 rose 0.6 cents to 80 cents on the dollar. The price for notes due in 2051, 2047 and 2033 also gained.
The central bank has now raised borrowing costs by 1,525 basis points since its tightening cycle began in May 2022 to tame inflation that quickened for an 18th consecutive month to 34.2% in June.
Price-growth has been driven by the government’s partial removal of fuel subsidies and a 70% depreciation in the naira since June 2023, following currency reforms that loosened its de facto peg against the dollar.
What Bloomberg Economics Says...
“The Central Bank of Nigeria’s smaller than expected rate increase at its July meeting is likely to be the last of the hiking cycle. The sharp policy tightening in the first half of 2024 — rates were raised a cumulative 800-basis-points — coupled with a high base effect that is set to take effect in the second half of the year, support a gradual slowdown in the annual inflation rate beginning in July. Looking ahead, we expect policymakers to hold rates until the end of 2024. A pickup in the pace of inflation’s deceleration early next year should then enable rate cuts to follow.”
— Yvonne Mhango, Africa economist
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The MPC remains “optimistic that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near term,” said Cardoso.
A more stable naira and measures to reduce the cost of food, including the introduction of a 180-day window to import wheat and corn duty free may help ease inflationary pressures.
“With the CBN now intervening more frequently in markets, both buying and selling FX, and doing so transparently, Nigeria may now finally be closer to its long-sought after FX stability,” said Razia Khan, chief economist for Standard Chartered Bank.
--With assistance from Simbarashe Gumbo, Rene Vollgraaff, Emele Onu, Ruth Olurounbi, Colleen Goko and Paul Richardson.
(Updates with quote from governor in paragraph three and comment from analyst in final paragraph)
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