The Bank of America (BOA) has highlighted the need for the Central Bank of Nigeria’s (CBN) Monetary Policy Committee to raise interest rates by at least 700 basis points before the year concludes in order to curb inflation. Tatonga Rusike, the bank’s sub-Saharan Africa Economist, emphasized in an interview with Bloomberg on Monday that such a hike is necessary to address the surging inflation resulting from the removal of fuel subsidies and the unification of foreign exchange.
Rusike explained that if the current trend persists, inflation could accelerate to 30% by the end of the year, up from 22.4% in May. He further noted that the nation’s central bank may need to implement interest-rate increases to counteract this situation.
The economist cautioned that failing to take this action could lead foreign investors to exercise caution before investing in the country.
“If the negative real interest rate is not reversed, it is less likely that we will see foreign inflows into the country,” Rusike said, adding that it is unlikely that the CBN will implement such significant rate hikes.
During its last Monetary Policy Committee meeting in May 2023, the MPC raised the benchmark interest rate by 0.5% to 18.50% from 18.00% in March. However, this increase has not been effective in slowing down Nigeria’s soaring inflation, which reached 22.41% in May 2023, compared to 22.22% in April 2023.
According to a report from the National Bureau of Statistics last month, the rise in the average prices of goods and services in the review period can be attributed to a 24.82% surge in the food inflation rate.
