How CBN rate hikes fail to tackle inflation

…as the cost of living worsens

After six consecutive rate hikes in almost a year by the Central Bank of Nigeria (CBN), inflation in Africa’s most populous nation has continued to accelerate.

The apex bank hiked the rate for the first time in May 2022 after six years, the stance was taken to fight the bullish inflation for ten straight months last year and this year a third consecutive increase.

Since the first rate hike, the benchmark rate was increased three more times last year by a total of 400 bp to 17 percent and twice this year to 17.5 percent and most recently 18 percent.

Despite this, the recent data by NBS on the inflation rate, reports a 17-year high record of 22.04 percent in March 2023.

While data has shown that constant rate hikes have not curbed inflation. Experts urge the monetary authorities to change their strategy to tackle the country’s inflation.

In a flash note published April 16, 2023, professional services company, KPMG Nigeria explained that inflation is cost pushed and need not be tackled by the monetary authorities through rate hikes.

“The reversal of inflation in March after a seeming slowdown in February reinforces our view that the determinants of inflation in Nigeria are largely cost-push factors which are out of control of monetary authorities,” the note said.

Also, in a report titled “Report Card: CBN’s New Naira Policy and Interest Rate Hikes” Basil Abia, research consultant Kwakol highlighted reasons why the rate hikes by the MPC have not affected inflation.

“The CBN’s aggressive push to contain Nigeria’s high inflation by deploying monetary tightening as part of its monetary policy through repeated interest rate hikes has not yielded the intended result. Inflation continues to rise unabated, mostly because the monetary tightening approach is not the right way to contain Nigeria’s supply-side or cost-push inflation.”

“It is important to note that Nigeria’s inflation is driven by supply-side concerns that raise the cost of production and inadvertently, consumer prices.”

A change in interest rate has a ripple effect throughout the economy, affecting the Nigeria stock market, bond market, lending rate, consumer and business spending, and asset prices among others.

If the benchmark interest rate is lower, the lending rate will be lower, making borrowing attractive to people. In turn, there’s more money to spend. Conversely, if the interest rate is high, lending becomes expensive and there’s less to spend.

This affects manufacturers as borrowing costs for production become more expensive.

According to experts, banks respond to interest rate changes. At the moment, commercial banks charge rates between 20 percent and 35 percent, according to BusinessDay findings.

“The increase in the MPR portends worrisome negative consequences for the manufacturing sector,” Ajayi-Kadir of MAN said in a note.

He said the rate hike would increase borrowing costs for businesses beyond the extant double-digit rate, which discourages new investments.

He explained that it would lead to increased factor costs, which feed into high product prices, thus making the country’s manufacturing unproductive.

In the first half of 2021, the average interest rate charged to Nigerian manufacturers stood at 24 percent, which increased from two percentage points in the same period in 2020, according to data from the MAN 2021 half-year review.

Nigeria’s Monetary Policy Rate (MPR) at 18 percent is the largest amongst its African peers such as South Africa, Kenya, Morocco, and Botswana which are 7.75 percent, 9.5 percent, 3 percent and 2.5 respectively.

Economies worldwide, including African countries, are tackling inflation induced by a surge in global food and fuel prices after the Russia-Ukraine last year and the backdrop of a strong US dollar against their local currencies.

This has caused many central banks to increase their monetary policy rate while warning about the impact of the global economic downturn.

When lending rates are high, the spending power of consumers drops and the demand for goods and services will drop, which will cause inflation to fall, and vice versa when lending rates are low.

This means that during high-interest rate and inflationary environments, it’s harder for Nigerians to afford their needs such as food, rent, and many more.

Read also: Explainer: What to expect as CBN plans to mop up dormant, unclaimed funds

Nigeria currently has 133 million multidimensionally poor people, representing 63 percent of the nation’s total population of 211 million individuals, according to the 2022 Multidimensional Poverty Index (MPI) report by the National Bureau of Statistics (NBS).

With an MPI score of 0.257, a quarter of the poor people in Nigeria suffer all possible deprivations, the report showed.

The World Bank reported that Nigeria’s accelerated inflation growth has eroded the N30,000 minimum wage by 55 percent and widened the poverty net with an estimated five million people in 2022.

Afrinvest (West Africa) Limited, a wealth advisory firm also said that Nigeria’s spiraling inflation rate has eroded the N30,000 monthly minimum wage by more than 40 percent since 2019, a new report by

The report titled ‘The Cost of Nigeria’s Spiraling Inflation Rate on the Average Household’, shows that since the national minimum wage was raised to N30,000 from N18,000 in 2019, the headline inflation rate index has risen by about 68.3 percentage points (ppts) from 2019 year-end to 517.39 points in February 2023.

After six consecutive rate hikes in almost a year by the Central Bank of Nigeria (CBN), inflation in Africa’s most populous nation has continued to accelerate. The apex bank hiked the rate for the first time in May 2022 after six years, the stance was taken to fight the bullish inflation for ten straight months last year and this year a third consecutive increase. Since the first rate hike, the benchmark rate was increased three more times last year by a total of 400 bp to 17 percent and twice this year to 17.5 percent and most recently 18 percent. Despite this, the recent data by NBS on the inflation rate, reports a 17-year high record of 22.04 percent in March 2023. While data has shown that constant rate hikes have not curbed inflation. Experts urge the monetary authorities to change their strategy to tackle the country’s inflation. In a flash note published April 16, 2023, professional services company, KPMG Nigeria explained that inflation is cost pushed and need not be tackled by the monetary authorities through rate hikes. “The reversal of inflation in March after a seeming slowdown in February reinforces our view that the determinants of inflation in Nigeria are largely cost-push factors which are out of control of monetary authorities,” the note said. Also, in a report titled “Report Card: CBN’s New Naira Policy and Interest Rate Hikes” Basil Abia, research consultant Kwakol highlighted reasons why the rate hikes by the MPC have not affected inflation. “The CBN’s aggressive push to contain Nigeria’s high inflation by deploying monetary tightening as part of its monetary policy through repeated interest rate hikes has not yielded the intended result. Inflation continues to rise unabated, mostly because the monetary tightening approach is not the right way to contain Nigeria’s supply-side or cost-push inflation.” “It is important to note that Nigeria’s inflation is driven by supply-side concerns that raise the cost of production and inadvertently, consumer prices.” A change in interest rate has a ripple effect throughout the economy, affecting the Nigeria stock market, bond market, lending rate, consumer and business spending, and asset prices among others. If the benchmark interest rate is lower, the lending rate will be lower, making borrowing attractive to people. In turn, there’s more money to spend. Conversely, if the interest rate is high, lending becomes expensive and there’s less to spend. This affects manufacturers as borrowing costs for production become more expensive. According to experts, banks respond to interest rate changes. At the moment, commercial banks charge rates between 20 percent and 35 percent, according to BusinessDay findings. “The increase in the MPR portends worrisome negative consequences for the manufacturing sector,” Ajayi-Kadir of MAN said in a note. He said the rate hike would increase borrowing costs for businesses beyond the extant double-digit rate, which...


After six consecutive rate hikes in almost a year by the Central Bank of Nigeria (CBN), inflation in Africa’s most populous nation has continued to accelerate. The apex bank hiked the rate for the first time in May 2022 after six years, the stance was taken to fight the bullish inflation for ten straight months last year and this year a third consecutive increase. Since the first rate hike, the benchmark rate was increased three more times last year by a total of 400 bp to 17 percent and twice this year to 17.5 percent and most recently 18 percent. Despite this, the recent data by...


After six consecutive rate hikes in almost a year by the Central Bank of Nigeria (CBN), inflation in Africa’s most populous nation has continued to accelerate. The apex bank hiked the rate for the first time in May 2022 after six years, the stance was taken to fight the bullish inflation for ten straight months last year and this year a third consecutive increase. Since the first rate hi...


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