Nigeria’s central bank governor, Olayemi Cardoso is facing a difficult challenge as he is about to announce his first interest-rate decision, with investors eager for decisive measures amidst public outrage over the steep rise in living expenses, Bloomberg reported on Tuesday.
The naira has experienced a nearly 70 per cent depreciation against the dollar, while inflation has soared to levels nearing a three-decade peak.
Consequently, economists surveyed by Bloomberg anticipate that Cardoso will announce a 250 basis-point increase to 21.25 per cent later today. He is scheduled to commence discussions on the monetary policy committee’s considerations around 2 p.m. in Abuja (1 p.m. GMT).
“This is a crucial meeting for Nigeria’s central bank to show it can exert control over the currency, while sticking to the new floating exchange rate policy,” Charlie Robertson, head of macro strategy at FIM Partners UK Ltd. in London told Bloomberg.
Notably, the surge in living expenses has sparked protests across 36 states in the country. This has prompted a senior aide to President Bola Tinubu to urge Cardoso to closely observe the political ramifications of his actions, acknowledging the potential for a negative public response.
In September, Tinubu appointed Cardoso as part of a comprehensive overhaul of the central bank’s leadership, marking the first gathering of the MPC since July. Subsequently, the inflation rate has surged to 29.9 per cent.
The interest rate decision will come after a sequence of recent actions taken by the central bank to revive the currency and ease inflationary pressures. These measures include reforms to Nigeria’s heavily criticised foreign exchange system, as well as initiatives aimed at increasing the availability of US dollars within the local market.
According to Ibukunoluwa Omoyeni, an economist at Vetiva Research, the MPC needs to take assertive action and build upon the central bank’s proactive measures by implementing a rate hike. This move aims to enhance the actual rate of return and reduce the rapid depreciation of the naira. Currently, Nigeria experiences negative real interest rates when accounting for inflation.
