Nigeria: World Bank sees further interest rates hike as cost pressures remain

The Nigerian monetary policy committee may continue to increase interest rates in response to higher inflationary trends and weakening currency, the World Bank has said.

The Washington-based bank in its recent Africa’s Pulse report said that while other African countries have begun their easing cycles and lowering benchmark interest rates, Nigeria’s may remain elevated as cost pressures are yet to wane.

“Central banks in countries that still have double-digit inflation and weakened domestic currencies (such as Angola, Nigeria, and Sierra Leone) will keep monetary policy rates higher for longer and, in fewer cases, they may increase their policy rates—particularly in countries where inflation rates still have not peaked,” the World Bank said.

The multilateral lender explained that currency weakness, slow fiscal adjustment, and cost pressures are among the factors driving these countries to keep a tighter stance for a longer period.

Nigeria has continued to grapple with high inflation and weakened currency following the removal of costly petrol subsidy and devaluation of its naira in 2023. This twin action has eroded purchasing power and worsened citizens’ living conditions.

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In response to the rising price pressures, the Central Bank of Nigeria under Governor Olayemi Cardoso has continued to be hawkish in its monetary policy stance raising the interest rates by a cumulative 850 basis points to 27.25 percent within a year.

But this is yet to calm the tides of consumer prices which has now quickened to 32.7 percent in September after three months of declining. The naira has equally not budged and was even categorized among the worst performing currency in end-August.

“Ethiopia, Ghana, and Nigeria are among the worst performing in Africa this year, and their currencies continue weakening while demand for foreign exchange remains pressing,” the World Bank said.

Analysts have called for caution in raising rates, stressing that Nigeria needs real capital inflows to end its exchange rate crises which will trickle down on inflation.

They hinted that monetary policies, rather than ensure price stability will cripple business operations, lead to loss of jobs and strain consumer prices as high borrowing rates reduce investment expansions.