CBN increases interest rates by 50 basis points to 26.75% in desperate bid to combat inflation

CENTRAL Bank of Nigeria (CBN) directors have once again increased interest rates by a whopping 50 basis points bringing the lending rate to a colossal 26.75% in response to the ongoing hyper-inflation that is ripping through the economy.

Inflation is currently about 31% in Nigeria, with the cost of basic foodstuffs like gari, rice, beans, yam cooking oil, tomatoes, vegetables, etc the mist badly affected. According to the National Bureau of Statistics (NBS), inflation is escalating  as demand remains steady while industrial output has reduced significantly.

Apparently the highest increases were recorded in prices of passenger transport by road, medical services, actual and imputed rentals for housing, pharmaceutical products, accommodation service and passenger transport by air. to combat the menace, the CBN's monetary policy committee (MPC) met today and decided to raise interest rates to 26.75% from 26.25% in May 2024.

CBN governor, Olayemi Cardoso, said the decision to further increase the interest rate is to tackle the country’s rising core inflation and food inflation which stood at 34.19% and 40.87%  respectively in June. He said members of the MPC are not oblivious of the need to address the rising prices of food in Nigeria, necessitating the interest rate hike.

What this hike means in practical terms is that businesses, farmers, manufacturers and investors will have to pay more interest for their bank  loans. Today's 296th MPC meeting followed in the footsteps of recent ones as it is the fourth time the interest rates have been increased since the appointment of Mr Cardoso in September last year.

In May 2023, when President Bola Tinubu took office, Nigeria’s interest rates stood at 18.75%  while inflation rate stood at 22.41%. However, since then, inflation has spiralled out of control and despite the CBN’s continued interest rate hikes, inflation has refused to cool off.

Muda Yusuf, the director of the Centre for Promotion of Private Enterprise, has backed calls for a pause in the hike in interest rates. According to him, the CBN's monetary instruments have been overstretched, hence not productive.

Mr Yusuf said: “I think we have overstretched monetary instruments because of inflation. They should put a pause on interest rate hikes."

Other areas where the effects of this hyper-inflation are badly felt apart from food include non-alcoholic beverages, housing, water, electricity, gas and other fuel, clothing and footwear and transport. Also affected are furnishings, household equipment and maintenance, education, health, miscellaneous goods and services, restaurants and hotels, alcoholic beverages, tobacco and kola, recreation and culture and communication.