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CBN Increases Benchmark Rate to 8.75% to Curb Inflation

By on July 26, 2011

Central bank increased its benchmark interest rate for the fourth time this year as rising wages and higher energy costs threaten to boost inflation.

The monetary policy rate increased by three quarters of a percentage point to 8.75 percent, CBN Governor Lamido Sanusi told reporters in the capital, Abuja, today. The key borrowing and lending rates climbed by the same amount to 6.75 percent and 10.75 percent respectively.

The government will more than double the minimum wage to 18,000 naira ($118.15) next month, adding to price pressures in Africa’s biggest oil producer. While inflation slowed in June to 10.2 percent from 12.4 percent in the previous month, the core inflation rate, which excludes food, is expected to accelerate in the second half, Sanusi said.

“With core inflation set to rise and the growth outlook still robust, the Central Bank of Nigeria has laid down clearly its price stability credentials,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mail.

The naira was at 152.35 against the dollar as of 3:33 p.m. in Lagos, compared with 152.25 before Sanusi’s speech. The naira has strengthened 2.7 percent against the dollar since June 1. To ease pressure on prices, the central bank is selling more dollars to keep the naira within a range of 3 percent above or below 150 per dollar at twice-weekly auctions.

Bloomberg