The Central Bank of Nigeria on Tuesday hiked its main lending rate by 150 basis points to 15.50%, its highest level yet and more than forecast, forging ahead with efforts to rein in inflation and ease pressure on the currency.
A Reuter’s poll of economists had predicted a much smaller 50 basis point hike.
But with inflation at its highest in 17 years, the CBN, Governor Godwin Emefiele, said the Monetary Policy Committee had to continue with an aggressive stance.
Annual inflation rose for a seventh straight month in August to 20.52% from 19.64% in July.
Tuesday’s rate hike, the third in a row, means the CBN has delivered a total 400 basis-point increase this year, its most hawkish in a single cycle, analysts said.
The benchmark interest rate was introduced in 2006.
“The MPC noted that a tight policy stance would help consolidate the impact of the last two policy rate hikes, which is already reflected in the slowing growth rate of money supply,” Emefiele told a news conference.
“It also felt that an aggressive rate hike would slow capital outflows and likely attract capital inflows and appreciate the naira currency,” Emefiele added.
The naira currency weakened to a new low of N725 against the dollar on the black market this week, traders said, and within a band of N415-N435 on the official market.
Emefiele increased the cash reserve requirements for banks to mop liquidity from the market and stop currency speculation. He said banks which fail to raise their reserves would be barred from the foreign exchange market from Friday.
Economist Virág Fórizs from Capital Economics said Emefiele’s comments “suggest that more monetary tightening lies in store.”
High inflation, weak economic growth and mounting insecurity are major issues for voters as Nigeria heads for a national election in February, when incumbent President Muhammadu Buhari will step down.
Responding to reporters’ questions, Emefiele declined to rule out further rate hikes to fight inflation