Flash Report /

Nigerian central bank surprises with another rate hike

  • The Central Bank of Nigeria hiked by 100bps to 14% amid a continued rise in inflation, which reached 18.6% yoy in June

  • There has also been a recent rise in market yields, which could begin to tamp down on demand-side pressures

  • However, structural impediments to policymaking will remain until the removal of Governor Emefiele (term ends May 2024)

Nigerian central bank surprises with another rate hike
Tellimer Research
19 July 2022
Published byTellimer Research

The Central Bank of Nigeria (CBN) surprised for a second consecutive meeting with a 100bps hike to its policy rate, taking it to 14% – a move that was predicted by just two of the eight analysts surveyed by Bloomberg (four predicted an unchanged rate and two predicted a 50bps hike).

The decision came amid a continued rise in inflation, which has risen from 15.9% yoy in March to 18.6% in June amid increases across food, energy and core prices, prompting the CBN to adopt a more hawkish stance at its previous monetary policy committee (MPC) meeting, in May.

We think inflation will continue to rise to 19.5% yoy in August before moderating to 18.2% by year-end, prompting us to revise our average 2022 projection to 17.8% from 17.0% in May.


As with the last MPC meeting, the hike is largely symbolic, with the structural impediments to monetary policymaking still largely unaddressed. These include: an endemic FX shortage and the trend towards pricing goods off the parallel market due to the overvalued naira; using ad hoc cash reserve ratio (CRR) debits as the CBN’s primary tool to manage liquidity in the system; and directly providing credit at preferential 5% rates to strategic sectors (see here for a deeper analysis of Nigeria’s monetary policy dilemma).

This has blunted Nigeria’s monetary policy transmission mechanism and led to the decoupling of market rates from the policy rate. Consequently, Nigeria’s policy has remained excessively loose and monetary aggregates have continued to rise over the course of the year (with M3 growth rising from 13.4% yoy in December to 23.7% in June).

That said, on this front, there has been some good news, with the three-month T-bill yield tripling to 7.6% from a trough of 2.5% at the end of Q1. While this is still far below the 14% policy rate and represents an effective real policy rate of -11%, it is the first bona fide rise in market rates since H1 21 and helps partly reverse the medium-term downtrend in T-bill rates that saw them briefly touch zero in late-2020.

The rising rates also make a case for a sell-off in equities – Nigeria was once the top-performing market globally but is now second to Lebanon’s stock market.   

Market rates

Conversely, the CBN’s FX management has shown no signs of improvement. Although NGN has edged up slightly in the official I&E market, rising from a soft peg of 416/US$ for most of the year to as high as 427/US$ earlier this month (it has since dropped to 423/US$), it has continued to depreciate on the parallel market and now trades above 630/US$ (a 50% premium to the I&E window).

This will continue to undermine the CBN’s efforts to rein in inflation and attract investment. Unfortunately, Nigeria will likely muddle through with unorthodox FX and monetary policy until the elections in February 2023. After that, the best chance for policy normalisation is if the new president removes CBN Governor Emefiele before the end of his term in May 2024.

Otherwise, the CBN will likely continue to pursue a harmful stagflationary policy mix that prevents Nigeria from achieving its growth potential and promoting domestic and foreign investment and keeps inflation stubbornly high in the double-digits.

Note: See here for our recent Buy recommendation on Nigerian eurobonds, here for a more detailed analysis of Nigeria’s monetary policy and here for a deep dive into Nigeria’s macro outlook.

Related reading

Nigeria: Upgrade to Buy after excessive sell-off, June 2022

Nigerian central bank surprises with symbolic 150bps rate hike, May 2022 (Curran, Ogunkoya & Omole)

Nigeria annual macro overview: The song remains the same, February 2022 (Curran and Malik)

Nigeria: Stealth devaluation possibly underway, November 2021 (Curran, Ogunkoya & Omole)

Nigeria: FX overhaul promised post-Dangote refinery, October 2021

Nigeria: Ban of abokiFX furthers FX folly, September 2021

Central Bank of Nigeria adds fuel to the fire by banning BDCs, July 2021 (Curran & Ogunkoya)

Stagflation will continue without major policy shift, July 2021

Central Bank of Nigeria makes dovish shift and affirms FX unification, May 2021

Nigeria: Another meaningless naira devaluation, May 2021

Our discussion with Nigeria’s IMF Mission Chief, April 2021

Nigeria policy rate and FX regime left intact, March 2021

Nigeria devalues official exchange rate, but impact will be limited, March 2021