Nigeria hikes rate to highest level to head off inflation

BY Reuters | ECONOMIC | 09/27/22 09:27 AM EDT


Benchmark at highest level since adoption in 2006


Emefiele declines to rule out further rate hikes


Bank reserve requirements raised to curb currency speculation

(Adds analyst, details)

By MacDonald Dzirutwe

LAGOS, Sept 27 (Reuters) - Nigeria's central bank on Tuesday hiked its main lending rate by 150 basis points to 15.50%, its highest level yet and more than forecast, forging ahead with efforts to rein in inflation and ease pressure on the currency.

A Reuters poll of economists had predicted a much smaller 50 basis point hike.

But with inflation at its highest in 17 years, Central Bank of Nigeria Governor Godwin Emefiele said the Monetary Policy Committee had to continue with an aggressive stance.

Annual inflation rose for a seventh straight month in August to 20.52% from 19.64% in July.

Tuesday's rate hike, the third in a row, means the central bank has delivered a total 400 basis-point increase this year, its most hawkish in a single cycle, analysts said.

The benchmark interest rate was introduced in 2006.

"The MPC noted that a tight policy stance would help consolidate the impact of the last two policy rate hikes, which is already reflected in the slowing growth rate of money supply," Emefiele told a news conference.

"It also felt that an aggressive rate hike would slow capital outflows and likely attract capital inflows and appreciate the naira currency," Emefiele added.

The naira currency weakened to a new low of 725 against the dollar on the black market this week, traders said, and within a band of 415-435 on the official market.

Emefiele increased the cash reserve requirements for banks to mop liquidity from the market and stop currency speculation. He said banks which fail to raise their reserves would be barred from the foreign exchange market from Friday.

Economist Vir?g F?rizs from Capital Economics said Emefiele's comments "suggest that more monetary tightening lies in store".

High inflation, weak economic growth and mounting insecurity are major issues for voters as Nigeria heads for a national election in February, when incumbent President Muhammadu Buhari will step down.

Responding to reporters' questions, Emefiele declined to rule out further rate hikes to fight inflation. (Reporting by MacDonald Dzirutwe Writing by MacDonald Dzirutwe and Alexander Winning Editing by James Macharia Chege and Angus MacSwan)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.