Why CBN shocked markets with interest rate hike of 27.25% in bold move to tackle inflation and Naira instability

NAIRAMETRICS

Nigeria’s Central Bank stunned the global financial community on Tuesday when its Monetary Policy Committee (MPC) voted unanimously to raise the Monetary Policy Rate (MPR) by 50 basis points, bringing it to 27.25%.

In a world where most central banks are cutting interest rates to spur growth, the CBN’s decision stands in sharp contrast, defying expectations. Analysts had widely anticipated that, at best, the CBN would hold rates steady, given the global trend towards monetary easing.

However, Nigeria’s apex bank chose a hawkish stance, signaling its determination to tackle persistent inflationary pressures. This bold move comes as global financial conditions are expected to ease, yet Nigeria has opted to tighten monetary policy, a decision that surprised many observers.

In a candid and resolute Monetary Policy Communique, CBN Governor Olayemi Cardoso offered a sobering assessment of the state of the Nigerian economy.

While recent drops in inflation provided some relief, Cardoso made it clear that now was not the time for complacency.

Nairametrics reviewed the governor’s address and outlined the five key reasons behind the CBN’s decision to maintain its hawkish stance.

While headline inflation in Nigeria showed some moderation in recent months, core inflation remains stubbornly high, driven by the rising costs of energy.

Nigeria’s growing money supply has led to excess liquidity in the financial system, which is putting pressure on the foreign exchange market.

One of the key successes of the CBN’s hawkish stance has been the stabilization of the exchange rate.