The economy is seen to be harmed by CBN rate hikes in Q2.
Economists and analysts predict that the Central Bank of Nigeria’s (CBN) jumbo interest rate hikes since February will negatively impact economic growth in Q2. Despite the National Bureau of Statistics reporting a GDP rise to 2.98% in Q1 2024 from 2.3% in Q1 2023, growth slowed compared to the previous quarter.
Economist Ayo Teriba noted that the positive year-on-year growth was due to past uncertainties, but the tightening measures will likely affect future quarters. The CBN has raised its monetary policy rate three times, totaling a 750 basis point increase to 26.25%, aiming to combat inflation and stabilize the naira. Analysts from FBN Quest and Comercio Partners anticipate slowed economic growth, reduced consumer spending, and decreased business investments due to the rate hikes.
Q1 growth was driven by the services sector, which grew by 4.32% and contributed 58.04% to GDP. The agriculture and industry sectors also saw improvements. Economists expect Q2 growth to slow but remain around 2.4-2.5%. Factors such as rising inflation, which hit 33.69% in April, and high borrowing costs are stifling economic growth.
Despite measures like removing the petrol subsidy and lifting currency controls, inflation remains high, weakening consumer purchasing power. Analysts suggest that sustained oil output improvements and addressing forex market volatility could positively impact Q2 growth. However, the latest rate hike by the CBN may hinder real sector growth and GDP performance, with projections of real GDP not exceeding 3.3% this year.
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