CBN’s resistance to rate hikes raises concern

The Central Bank of Nigeria’s (CBN) refusal to raise its benchmark interest rate since July despite rising inflation has left investors flying blind, London-based Capital Economics has said.

The Monetary Policy Committee, which sets the rate, last met in July and increased borrowing costs for the eight straight time to 18.75 percent from 11.5 percent in May 2022, when it started the rate hike cycle.

“High inflation is pushing some African economies to return to monetary tightening but Nigeria has resisted so far. We doubt this will last,” Capital Economics said in a note on Friday. 

It pointed out that inflation rose again in Nigeria, Angola and Zambia last month as currency weakness fed through. 

Angola and Zambia both raised interest rates by 100 basis points last week after holding off from further hikes for the last few months.

“Nigeria is now an outlier after cancelling this week’s MPC meeting. Instead, the CBN has stuck with open market operations and liquidity measures to tackle inflation. The CBN’s resistance to rate hikes and poor communication is leaving investors flying blind,” the economic research firm said. 

It said Nigeria would be better off following the lead of Angola or Zambia who have acted despite much lower inflation. 

“Clearer messaging on its strategy to address inflation as well as exchange rate pressures would go a long way to restoring credibility,” Capital Economics added.

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