Nigeria Prepares for Two Aggressive Interest Rate Hikes in Q1

JOHANNESBURG, February 23 – A recent Reuters poll indicates that Nigeria is poised for two assertive interest rate hikes in just over a month to curb inflation and strengthen the naira. The survey, conducted in the past week, suggests that Nigeria’s monetary policy rate is expected to be increased by 225 basis points to reach 21.00% on February 27, marking Governor Olayemi Cardoso’s first monetary policy meeting since assuming office a couple of months ago.

Among the 15 analysts surveyed, there was no clear consensus, with one predicting a 50 basis points hike to 19.25%, and another anticipating a substantial 1,000 basis points increase to 28.75%. This diversity of opinions sets the stage for potentially aggressive actions by Governor Cardoso, although there are doubts about the authorities’ willingness to take such measures.

Razia Khan at Standard Chartered expressed the expectation of significant policy tightening and the introduction of de facto system-wide tightening measures. According to Khan, these steps are deemed necessary to attract greater foreign portfolio investment and anchor inflation expectations. Another 175 basis points increase, pushing the rate to 22.75%, is anticipated in March.

The move comes as consumer inflation in Nigeria, the largest economy in Africa, accelerated for the 13th consecutive month in January, reaching 29.90%. This persistent rise in inflation has heightened the cost of living, posing challenges for many in the continent’s most populous nation.

The Central Bank of Nigeria (CBN) has not held a policy meeting since July, placing it out of sync with other key central banks on the continent that convene meetings almost every second month. Analysts at Barclays find reassurance in the CBN’s announcement that it will hold its first two Monetary Policy Committee (MPC) meetings of the year in quick succession on February 27 and March 26. This is seen as an acknowledgment that the CBN recognizes its lag behind the policy curve and needs to deliver at least two robust doses of policy tightening.

The naira, Nigeria’s currency, recently depreciated to its weakest level at 1,680.5 per dollar in the official spot market due to a chronic shortage of the U.S. currency. The looming interest rate hikes aim to address these economic challenges and stabilize the financial landscape.