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Nigeria’s Cardoso Signals Rate Cuts Next Year as Inflation Cools

Olayemi Cardoso, governor of the Central Bank of Nigeria, following a Bloomberg Television interview in London, UK, on Tuesday, June 25, 2024. (Betty Laura Zapata/Photographer: Betty Laura Zapata)

(Bloomberg) -- Central Bank of Nigeria Governor Olayemi Cardoso gave a clear signal that high interest rates would be eased in coming months if inflation pressures cool as expected.

Cardoso said that the CBN’s cumulative 875 basis points of rate increases this year were an “essential move” to contain inflation and restore stability, before assuring his audience in Lagos, the commercial hub, on Friday that relief was on the way.

“These measures are not intended to be permanent,” he said at an annual dinner for the banking industry. “We are closely monitoring the data and as inflation shows sustained signs of improvement – something we expect in the near future – we will adjust rates accordingly.”

Cardoso, installed by President Bola Tinubu in September 2023, used his speech at the same dinner last year to pledge a return to orthodox monetary policy. Since then, he has allowed the naira to trade more flexibly against the dollar and pursued aggressive interest-rate increases to curb rising inflation.

Africa’s most populous nation has seen inflation climb to 33.9% in October, near its highest level since 1996, stoked by fuel and food price increases and persistent currency weakness, which has made imports more costly.

“Our tight monetary policy stance has altered the previous dire trajectory and we expect a downward trend in 2025,” Cardoso said. “Inflation remains unacceptably high but the signs are encouraging, particularly given that the full affects of monetary policy typically take six to nine months to impact the consumer sector.”

The central bank raised its benchmark rate by 25 basis points earlier this week to 27.5%, its sixth consecutive hike of the year to cool inflation near a three-decade high. Analysts expect rate hikes to continue through the second quarter of 2025 as price pressures persist.

While the naira has lost about 70% of its value since Tinubu loosened its longstanding peg against the dollar in 2023, it has narrowed the gap between where it trades on the official versus unofficial market, while capital inflows have increased.

©2024 Bloomberg L.P.