Bank of America’s sub-Saharan Africa Economist, Tatonga Rusike, has issued a stark warning that the Monetary Policy Committee of Nigeria’s Central Bank may need to implement a significant interest rate hike of at least 700 basis points before the end of the year.
This move, according to Rusike, is essential to curb the skyrocketing inflation triggered by the removal of fuel subsidies and the unification of foreign exchange.
Rusike expressed concerns that if immediate action is not taken, Nigeria’s inflation rate, currently at 22.4 percent as of May, could surge to a staggering 30 percent by the year-end.
The Bank of America economist emphasized the urgency for the nation’s apex bank to push up interest rates as a necessary monetary policy response to this looming crisis.
According to Rusike, foreign investors might exercise caution before considering investments in Nigeria due to the lack of a reversal in the negative real interest rate, making it less likely for the country to attract the much-needed international investment.
The Central Bank of Nigeria (CBN) has been gradually increasing interest rates in an attempt to tackle inflation.
During its last Monetary Policy Committee meeting in May 2023, the benchmark interest rate was raised by an additional 0.5 percent to 18.50 percent, up from 18.00 percent in March.
Despite these efforts, Nigeria’s soaring inflation continues to persist, rising as much as 22.41% in May, up from 22.22% in April. The National Bureau of Statistics had attributed the rise in average prices of goods and services to a significant 24.82 percent increase in the food inflation rate.
As the nation grapples with this inflation crisis, the urgency for proactive measures becomes increasingly evident as the Bank of America emphasizes the need for the Central Bank of Nigeria to take bold steps to stabilize the economy, prevent further inflationary pressures, and restore confidence among foreign investors.
However, the decision to implement such substantial interest rate increases remains uncertain. The Central Bank will have to carefully evaluate the potential risks and benefits of such a move, taking into account the overall impact on the economy, borrowing costs, and investment climate.
