Interest Rates Will Stay High Until Inflation Drops - Olayemi Cardoso

It was reported on Monday that Mr Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN), has stated that interest rates will stay high until the country's inflation rate falls. 

The CBN governor stressed the need to adopt traditional measures to tackle inflation, which rose to an all-time high of 33.20% in March from 31.70% in February.

He stated that raising interest rates has had a lowering impact on the foreign exchange market. "It's not a zero-sum game. You lose on one side, you get on the other," he said. 

In March, the CBN's Monetary Policy Committee (MPC) increased interest rates by 200 basis points to 24.75 percent as a response. Cardoso emphasized that the MPC is ready to take the required actions to reduce inflation, saying, "They will continue to do what has to be done to ensure that inflation comes down."

Cardoso highlighted the CBN's renewed emphasis on price and financial stability, acknowledging a shift in policy and emphasizing that the official window of the foreign exchange (FX) market has stabilized. He pointed out that an encouraging sign for investors is that they are more familiar with market movements.

"We want to go back to using an orthodox method, and it will take us to where we want to go," the CBN governor said, adding that the apex bank had been reoriented to focus on price and monetary stability," he said, according to the platform.

Cardoso noted that despite the naira's volatility, it recovered from its lowest point of N1,627.40/$ in the official FX window on March 8 to N1,154.08/$ on April 18. Nevertheless, the currency's gains started to decline after that, and as of May 10, the official FX rate was N1,466.31/$.

Cardoso expressed hope that rising interest rates would not discourage investment and production for an extended period while acknowledging their impact on the FX market. He blamed the pressures of inflation mainly on the high cost of food, which increased to 40.01% in March from 24.45% in the same month last year.

"Hiking interest rates obviously has dampened the foreign exchange market, so that has begun to moderate. It's not a zero-sum game. You lose on one side, you get on the other," he said, adding that the apex bank had been "reoriented" to focus on "price and monetary stability." 

Back Story

In April, the National Bureau of Statistics (NBS) reported that Nigeria's annual inflation rate rose to 33.20% in March from 31.70% in February.

According to the statistics office, the headline inflation rate for March 2024 rose by 1.50% compared to February 2024.

The headline inflation rate was 11.16% points higher annually than in March 2023, when it was 22.04 percentage points, according to the NBS.

"This shows that the headline inflation rate (on a year-on-year basis) increased in March 2024 when compared to the same month in the preceding year (i.e., March 2023)," it said.

In addition, the NBS reported that month over month, the headline inflation rate in March 2024 was 3.02%, which was 0.10% less than in February 2024.

According to the statement, the average price level increased slower in March 2024 than in February 2024.

The report states that the food inflation rate in March 2024 increased annually to 40.01%, 15.56% points higher than in March 2023.

It was reported that food costs have increased recently in Nigeria. However, the effects of government initiatives, like eliminating petrol subsidies, among others, worsened the situation.