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Fitch says interest rate hikes unlikely to slow Nigerian inflation

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Nigeria’s unorthodox monetary policy approach will impede efforts to curb inflation in Africa’s largest economy, Fitch Ratings said.

The Central Bank of Nigeria‘s (CBN) decision to raise its benchmark interest rate for the first time in almost six years in May, by 150 basis points to 13 per cent, doesn’t signal a fundamental shift in its unconventional approach, the rating company said in a report published Thursday.

“We believe Nigeria’s complex policy approach will be maintained at least until the next presidential election in February 2023,” it said while raising its inflation forecast for the year to 17 per cent from 14.6 per cent.

Inflation in Nigeria hit an 11-month high of 17.7 per cent in May, up from 16.8 per cent in April. That growth trajectory is likely to continue in the near term unless the central bank aggressively hikes interest rates, a member of its Monetary Policy Committee (MPC), Festus Adenikinju said after its May 23-24 meeting, according to a statement published by the bank on Wednesday night.

“I am not sure that a one-off increase in the policy rate would do the magic of reining in inflation,” Adenikinju said. The bank’s next monetary policy meeting is in July.

The MPC had said at the previous meeting that the domestic price development is expected to maintain an upward pressure in the light of the build-up of increased spending related to 2023
general elections.

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