ABUJA: The Central Bank of Nigeria (CBN) on Tuesday raised its benchmark interest rate to 14 percent from 12 percent in move to stabilise the country's currency, the naira, and tame soaring inflation.
CBN governor Godwin Emefiele told reporters the monetary policy committee which meets every two months “voted to increase the MPR (interest rate) by 200 basic points from 12 percent to 14 percent."
MPR is the benchmark rate at which the CBN lends to commercial banks and it has been a key instrument in stabilising prices.
Financial analysts welcomed the decision.
“Given the cost-push nature of inflation in Nigeria, which largely stems from the shortage of foreign exchange, we believe that this was the right thing to have done," said Razia Khan of Standard Chartered Bank.
“Today's monetary policy decision demonstrates a commitment to foreign exchange liberalisation, which alone will undo some of the bottlenecks that have contributed to inflation," Khan added.
Inflation hit an 11-year high of 16.5 percent in June as prices of food and energy jumped after the government freed up the naira currency in April, allowing it to plummet against the US dollar.
Nigerians are struggling with spiralling cost of living after a 67 percent hike in the price of petrol in April and last month's scrapping of the peg of the naira exchange rate at 197/199 to the dollar.
The naira now trades at around 370 to the dollar on the black market. The official rate is at about 300 to the dollar.
The International Monetary Fund said last week it expected Nigeria's economy to contract by 1.8 percent in 2016 after having forecast a 2.3-percent expansion in April, but the finance Minister Kemi Adeosun said there was nothing to worry about.
Nigeria, one of Africa's main oil producers, normally gets 70 percent of its revenue from oil sales. But the global fall in crude prices since mid-2014 has left the government cash-strapped and even unable to pay wages.
The nation's economic woes have been exacerbated by sabotage to oil and gas facilities in the oil-producing south by militants wanting self-determination for the delta region.