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Nigeria interest rate hike: How high can rates go amid slowing growth?

By Ryan Hogg

Edited by Jekaterina Drozdovica

16:12, 1 December 2022

Nigeria flag in the blue sky. Horizontal panoramic banner.
Will slowing growth put paid to Nigeria interest rate hikes? Photo: Efasein / Shutterstock

Nigeria has been on a hawkish path to taming inflation in 2022, hiking interest rates by 450 basis points since April. But with growth slowing amid an oil production slump, can the country’s central bank afford to keep raising the Nigeria interest rate if it increasingly comes at the expense of growth?

Here we take a look at what factors are shaping interest rates in Nigeria, latest news and economic forecasts. 

What are interest rates and how are they set up in Nigeria?

The interest rate can be seen as a charge on borrowing and a reward for lending. It is a percentage charge on top of a loan, such as a mortgage or credit card debt, or a percentage return on a deposit placed in a bank.

Interest rates are a key lever in controlling the macroeconomy and the primary tool for central banks in carrying out monetary policy. Hikes in rates tend to occur during periods of higher inflation, brought on by a period of high demand and strong economic growth. Rate cuts occur during a deflationary period, which is typically seen as a time of low or negative economic growth and slow price rises. Rates tend to be set on the basis of an inflation target. 

Interest rate hikes can lead to a recession by lowering demand in an economy, making borrowing more expensive and saving more attractive, accordingly dissuading spending and investment in an economy. It also increases the cost of buying and owning a home, increasing the supply of homes for sale while reducing demand, bringing house prices down. 

This can have its own negative effects on demand, as a large proportion of the population have their wealth tied up in the value of their home. These effects would be seen as a natural downturn in the business cycle.

In Nigeria, interest rates are set by the Central Bank of Nigeria (CBN), which administers decisions based on maintaining price stability, with a ceiling target of 9%. It has independence from the government –  it makes decisions about monetary policy without guidance from the government or to accommodate fiscal policy measures.

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Nigeria interest rate throughout the years

Nigeria’s interest rate history over the last decade has been one of relative stability, though at a high base. 

The monetary policy rate floated around 12% in the years following the Great Recession. It was cut slightly from 14% to 11.5% following the onset of the Covid-19 pandemic.

Nigeria’s interest rate, 2018 - 2022

Since macroeconomic pressures from high inflation began to pressure the economy, the central bank has grown increasingly hawkish. The Nigeria interest rate went up from 11.5% in April to 15% by September – a 350 basis point increase. The CBN instigated another Nigeria interest rate hike in November, bringing the monetary policy rate up a further 100 bps to 16.5%. 

What’s driving Nigeria interest rates?

Like most countries, Nigeria’s interest rate path has been largely guided by inflation, which has been affected by supply chain disruption in the aftermath of the Covid-19 pandemic and Russia’s invasion of Ukraine, which has hit energy and food prices.

The country’s consumer prices index (CPI) rose by 21.09% in October, pushing the rate of price growth to its highest level since 2005 and doubling the rate seen early last year. Food prices drove the increase, rising by more than 23% year-on-year. High inflation increases the likelihood of a Nigeria interest rate rise, as the central bank tries to pull prices down.

At its last meeting, where it hiked rates to 16.5%, the CBN’s Monetary Policy Committee (MPC) noted the tradeoff between global economic headwinds and the relative health of the domestic economy. It noted:

“In reaching the decision of whether to loosen, hold or tighten the stance of policy, Committee felt that, given that all the causative factors, such as the Russia-Ukraine war, supply chain disruptions, slowdown in China, rising inflation in advanced economies and other headwinds were still dominant, a loosen option was not desirable at this meeting.

“The Committee also felt that, with the rising inflation, loosening the stance of policy would lead to a more aggressive rise in inflation and erode the gains already achieved through tightening.”

The MPC also noted that inflation may be worsened by the upcoming festive season. 

Despite a concentration on bringing down the rate of inflation, the central bank’s job is made easier by a growing economy running alongside rate hikes. According to the latest data, that job may be getting more difficult.

While Nigeria has made moves to lessen its dependency on the oil sector — its share of national GDP has fallen from 10.4% in 2014 to 5.7% now — the economy is still affected by fluctuations in the global oil price.


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The oil sector could be the reason for sub-optimal performance in output in the last quarter. GDP growth in Nigeria slumped to 2.25% in the third quarter of 2022, down from 4.03% in Q2 2022 and below CBN estimates as oil production dropped to 1.2 million barrels a day, compared to 1.43 million barrels a day in the second quarter.

The bank attributed the slowing growth to the “base effects of the recession and the challenging economic conditions that have impeded productive activities”. Indeed, the country’s oil sector contracted by a considerable 22.67% in Q3 2022, while the non-oil sector expanded by 4.27%. 

While Nigeria has been trying to hit its OPEC+ target, supply chain disruptions have hampered progress. More frustratingly, endemic oil barrel theft has conspired to suppress production.

“The large-scale oil theft in host communities is unlikely to abate in the medium term. In fact, the signs are that it will deteriorate without new interventions. Offerings in the new Petroleum Industry Act have only further antagonized host community actors,” Mondaq wrote in a note.

“Meanwhile, instances of collusion between culprits of theft and security and regulatory officials continue. Elections are scheduled to take place in February next year.”

Weakening gross domestic product (GDP) lessens the CBN’s case to hike the Nigeria interest rate to quell inflation. Given the supply-side falls in oil production driving the drop in output, the economy could be hit by a double whammy by further interest rate rises that hit demand. 

The Nigerian naira has tumbled slightly against the US dollar in 2022, falling by 4.2% year to date. That increases the price of imports, further jacking up inflation experienced by consumers and businesses. 

Moves by the central bank to go hawkish on Nigeria interest rate policy have possibly spared the naira a worse outcome, offsetting the effect of the greenback being seen as a safe haven asset. The Economist Intelligence Unit wrote. 

“Low oil production means Nigeria is not fully capturing high world oil prices and the exchange rate regime will be dysfunctional throughout the forecast horizon, in our view.

“Speculative attacks are expected to be commonplace, and a weak naira creates an outlook of high inflation. Tighter monetary conditions weigh on near-term economic growth prospects, feeding into a cycle of high unemployment and abysmal instability in parts of the country. After a general election in February 2023 we expect the new administration to be faced with the inescapable need to raise taxes and reduce subsidies.”

Nigeria interest rate outlook for 2023 and beyond

Nigeria interest rate predictions are predicated on the country’s macroeconomic situation in the face of numerous factors, and the effects of its own domestic issues in the oil sector. 

The African Development Bank Group painted a gloomy picture in their latest outlook (as of 1 December) on the Nigerian economy.

“Growth will decelerate, averaging 3.2% during 2022– 23, due to persistent low oil production and rising insecurity,” the bank said.

“Inflation is projected to remain elevated at 16.9% in 2022 and to stay above pre-pandemic levels in 2023, fueled mainly by rising food, diesel, and gas prices and persistent supply disruptions amplified by the Russia – Ukraine conflict.”

This could suggest the CBN will continue to hike Nigeria interest rates to try and tame inflation. According to forecasts though, current interest rates in Nigeria could be as high as the policy rate goes.

Trading EconomicsNigeria interest rate outlook as of 1 December expected rates to be 16% in 2023, before falling to 13% in 2024. 

Meanwhile, panellists for FocusEconomics as of 1 December gave a Nigeria interest forecast of 14.79% at the end of 2022 and 14.67% at the end of 2023.

Final thoughts

Note that analysts and algorithm-based Nigeria interest rate forecasts can be wrong and shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest Nigeria interest rate news, a wide range of commentary, technical and fundamental analysis.

Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose. 


What is the current interest rate in Nigeria?

The monetary policy rate in Nigeria is 16.5% as of 1 December 2022. 

Are interest rates likely to rise in Nigeria?

Experts mentioned in this article predicted interest rates in Nigeria will not go above their current level, but still face upward pressure from inflation. Note, however, that analysts’ views can be wrong.

What will interest rates be in 2023 in Nigeria?

Trading Economics predicted Nigeria interest rates to be 16% in 2023. FocusEconomics panellists expected the rate to fall to 14.79% by the end of 2023. Note that their predictions can be wrong and shouldn’t be used as a substitute for your own research.

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