As Nigeria grapples with its weakest naira valuation since mid-April and unprecedented inflation peaks, economic indicators compel the nation’s monetary policy committee to consider a substantial interest rate hike. Most analysts, based on a Bloomberg poll including twelve economists, anticipate the Central Bank of Nigeria (CBN) to implement a significant rate adjustment, with forecasts ranging from a 100 to a 200 basis-point increase during the upcoming policy meeting chaired by Governor Olayemi Cardoso in Abuja.
Following a rigorous 600 basis point adjustment in the first quarter, which escalated the interest rate to 24.75% in efforts to curb inflation and stabilize the national currency, the MPC faces renewed pressure due to a 28% devaluation of the naira against the dollar over the recent four-week period. This sharp depreciation has exacerbated inflation, propelling it to a 33.7% annual rate last month—surging well beyond the central bank’s 9% target ceiling.
“The currency’s rapid decline underscores an urgent need for additional, significant monetary tightening,” stated Yvonne Mhango, Bloomberg’s Africa economist. She anticipates a decisive 200-basis-point rate increase at the upcoming May 21 meeting, aimed at curbing soaring prices and restoring economic equilibrium.
Moreover, investors are advocating for Governor Cardoso to implement stricter liquidity controls and enhance transparency in foreign exchange operations. Ayodeji Dawodu, a director at BancTrust & Co., emphasized the necessity for clearer regulatory communications and more robust market interventions to stabilize the naira.
Despite some recovery in the national reserves to $31.78 billion as of mid-May from a notable dip in April, concerns linger about the adequacy and management of these funds, adding another layer of complexity to the central bank’s policy challenges.
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