CBN Hints at Rate Pause Following Third Consecutive Hike to 26.25%
The Central Bank of Nigeria (CBN) indicated it might soon halt its aggressive monetary tightening after its third consecutive interest rate hike, raising the benchmark rate by 150 basis points to 26.25% to combat inflation and support the naira. CBN Governor Olayemi Cardoso expressed optimism, noting that inflation components are beginning to moderate, showing signs of relief.
Despite the rate hike, other parameters such as the asymmetric corridor, cash reserve ratio, and liquidity ratio were kept unchanged. In April 2024, headline inflation rose to 33.69%, but month-on-month food inflation declined. Analysts had anticipated a smaller hike, but the CBN exceeded expectations.
Razia Khan of Standard Chartered Bank noted the CBN’s belief that inflation may be peaking. The impact on foreign exchange stability depends on the transmission of tightening through Open Market Operations. Muda Yusuf of the Centre for the Promotion of Private Enterprise warned of the negative impact on businesses with bank credit exposure. Analysts at Comercio Partners also highlighted the potential strain on the economy and the corporate sector, though they expect increased activity in the fixed-income market due to more attractive new securities.
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