Nigeria central bank surprises with rate cut

Abuja — Nigeria’s central bank lowered its benchmark lending rate by 350 basis points to 23% on Tuesday, in a surprise move it said was aimed at strengthening monetary policy transmission.

All seven economists polled by Reuters had predicted the Central Bank of Nigeria would leave the rate unchanged at 26.5% for the third policy meeting in a row.

Governor Olayemi Cardoso told a press conference that the rate reduction should be seen as “an operational reset to enhance the effectiveness of monetary policy and support the transition to an inflation-targeting framework”.

In arriving at its decision, the monetary policy committee noted that market rates had diverged from the benchmark lending rate, making its policy less effective, he said.

Headline inflation in Africa’s most populous nation has eased slightly since the last policy meeting in July, but that trend may soon stall due to rising domestic fuel prices, which have surged to record highs.

“Members observed that the moderation in inflation indicated the effectiveness of previous policy tightening measures, sustained exchange rate stability and improved inflation expectations,” Cardoso told reporters.

Analysts had thought the central bank would opt for a cautious approach, given risks from fuel and food prices .

The country holds a general election in January at which cost-of-living pressures are expected to be high on the agenda as President Bola Tinubu seeks re-election.