Central Bank raises rates in September

Bank delivers surprise hike: At its meeting on 23–24 September, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR)—its key policy rate—by 50 basis points to 27.25%. Moreover, it also increased the Cash Reserve Ratio for Deposit and Merchant Banks. Meanwhile, it left unchanged the Liquidity Ratio and the asymmetric corridor around the MPR at plus 500 basis points to minus 100 basis points. The move ran counter to market expectations of a hold.

High inflation and a weak currency prompt a hike: The Bank highlighted that core inflation remains elevated, which underlines the persistence of price pressures. Additionally, the CBN said that real interest rates remain negative, thus limiting much-needed inflows of foreign capital to support the ailing naira. Against this backdrop, the Bank deemed it necessary to hike interest rates again.

Muted forward guidance: The CBN did not provide any explicit forward guidance; instead it said that it would monitor domestic and global developments to “ensure that the appropriate response is always deployed to address emerging risks”. The majority of our panelists expect the Bank to hike by another 25–150 basis point at its last meeting of 2024 on 25–26 November, and to start cutting rates in H2 2025.

Panelist insight: Analysts at Fitch Solutions commented on the outlook: “We expect that the CBN will implement another 50bps hike at the final monetary policy committee (MPC) meeting of 2024 in November. Although we project inflation to continue its downward trend in the coming months, this will primarily be driven by favourable base effects as the year-on-year impact of the 2023 fuel price hike fades. Indeed, underlying price pressures will persist, as evidenced by above-trend month-on-month inflation caused by inadequate domestic food production and persistent weakness in Nigeria’s foreign exchange market.”

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