CBN raises benchmark rate to 24.75%

The Central Bank of Nigeria (CBN) has raised its benchmark interest rate to 24.75 per cent on Tuesday and keep it there for the rest of the year; a move analysts reckon will be enough to slow inflation and bring dollar inflows.

Last month, CBN delivered its largest interest rate hike in around 17 years, adding 400 basis points, yet seven of 13 analysts said it would add another 200 basis points later on Tuesday and take the key rate to 24.75 per cent.

The rest were divided between no move, just a 50 basis point (bps) lift, 125, 150 or a bumper 225 bps increase.

Nigeria's inflation quickened to 31.70 per cent in annual terms in February, a 28-year high.

Tatonga Rusike, BofA's sub-Saharan economist, said a cumulative 600 basis points of hikes would help bring inflation down to 25 per cent by end-year and likely inflows would support naira stabilisation, Eurobond market access and potential World Bank support.

"The inflows could help reduce official forex backlogs and mismatches in the forex market," he added.

Nigeria is looking at proposals for a Eurobond issue, Finance Minister Wale Edun said on Monday, saying falling interest rates were making international debt issues more affordable.

Africa's largest economy has borrowed from international creditors, including the World Bank, but has not tapped the Eurobond market since a $1.25 billion issue in 2022.

Nigeria has struggled to attract dollar inflows from its main export source of oil revenues since a commodity price slump around 2015 which it never really recovered from, seen in lower oil production levels.

The naira did somewhat recover after last month's hike in rates and some analysts are now taking a more constructive view on the currency after the central bank's strong show of intent in February.

It firmed after the central bank said that it had cleared its entire verified foreign exchange backlog.