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Nigeria set for two interest rate hikes in Q1

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Following a pair of missed monetary policy sessions, Nigeria is poised to raise interest rates twice in a little over a month to control inflation and support the naira, according to a Reuters poll released on Friday.

A recent study forecasts that Nigeria’s monetary policy rate would be raised 225 basis points to 21.00% on February 27 in CBN Governor, Olayemi Cardoso’s first monetary policy meeting since taking office a few months ago.

In March, interest rates are predicted to rise by 175 basis points to 22.75%.

In January, consumer inflation in Africa’s largest economy increased for the 13th consecutive month to 29.90%, making living costs unbearable for many in the continent’s most populous country.

There was no clear consensus among the 15 analysts polled, with one predicting a 50-basis-point increase to 19.25% and another expecting a 1,000-basis-point increase to 28.75%.

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This opens the door for Cardoso to act aggressively, while some question if officials are willing.

“We expect significant policy tightening and the announcement of de facto system-wide tightening measures,” wrote Razia Khan at Standard Chartered.

“We think both steps are needed to attract greater foreign portfolio investment and anchor inflation expectations,” she told Reuters.

A 175 bps jump to 22.75% is expected in March.

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Consumer inflation in Africa’s biggest economy quickened for the 13th straight month in January to 29.90%, raising the cost of living to unbearable levels for many in the continent’s most populous nation.

The Central Bank of Nigeria (CBN) has not had a policy meeting since July, putting it out of kilter with the rest of the continent’s key central banks that hold meetings almost every second month.

“Reassuringly, the CBN has announced that it will hold its first two MPC meetings of the year in quick succession, on February 27 and March 26,” wrote analysts at Barclays.

“This suggests to us that it is aware it is well behind the policy curve, and will need to deliver at least two strong doses of policy tightening.”

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The naira fell to its weakest level at 1,680.5 per dollar on Wednesday in the official spot market amidst a chronic shortage of the US currency.

David Omojomolo, Africa economist at Capital Economics, wrote that the latest devaluation may be enough to put the balance of payments on a stable footing, though as things stand the currency has continued to weaken on the parallel market.

A poll last month suggested economic growth in Nigeria would be 3.0% this year and 3.7% next.

“Nigeria needs to take a leaf out of Kenya or Zambia’s book – and ‘tighten’ monetary policy with rate hikes,” said Charlie Robertson, head of macro strategy at FIM Partners.

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Stabilising the naira is probably the most pro-growth move the CBN could make, so interest rate hikes would benefit Nigeria more than harm it, he added.

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