The World Bank said Nigeria, Angola and Sierra Leone, with double-digit inflation and weak currencies, could keep interest rates high for a long time and even raise them.
In its latest Africa Pulse report, the bank said it focused on how the inflation outlook differs across countries on the continent.
On Tuesday, the National Bureau of Statistics said the country’s inflation rate accelerated to 32.70 in September after two consecutive months of declines on the back of higher fuel prices, eroding the impact of the harvest season on food prices.
At the last Monetary Policy Committee meeting of the Central Bank of Nigeria, the benchmark interest rate was raised by 50 basis points to 27.25% with the aim of curbing inflation.
The World Bank said in Africa Pulse that central banks in Nigeria, Angola and Sierra Leone will consider approaches to raising interest rates over a longer period of time, unlike other African countries that have already lowered or left benchmark interest rates unchanged.
“Central banks in countries that continue to experience double-digit inflation and weak currencies (such as Angola, Nigeria, and Sierra Leone) will likely keep monetary policy rates high for longer periods of time, and in some cases raise them. Especially in countries where inflation has not yet peaked.
“In general, weak currencies, delays in fiscal adjustment, and cost pressures are factors that keep these countries in a tightening position for an extended period of time. For example, Ethiopia, Ghana, and Nigeria are among the worst performers in Africa this year. “Currency depreciation continues even as demand for foreign currency remains tight,” the World Bank report said.
He also pointed out that measures to alleviate social unrest caused by the high cost of living in Angola (doubling the minimum wage) and Nigeria (partly reinstating fuel subsidies) were putting pressure on public finances.
The Bretton Woods organization has already revealed that the naira was one of the worst-performing currencies in sub-Saharan Africa in 2024.
As of the end of August, the naira had fallen about 43% since the start of the year, making it one of the region’s weakest currencies, along with the Ethiopian bir and the South Sudanese pound.
The depreciation of the naira is believed to be due to several factors, including a surge in demand for US dollars in the parallel market, restrictions on dollar inflows, and delays in foreign currency disbursements by the Central Bank of Nigeria.
The World Bank further highlighted that dollar demand by financial institutions, non-financial end users and asset managers is exacerbating the pressure on the naira.
The newspaper said: “By August 2024, the Ethiopian birr, Nigerian naira and South Sudanese pound were the worst performers in the region. The value of the Nigerian naira continued to decline, by about 43% since the beginning of the year as of August. It fell.
“The surge in US dollar demand in the parallel market, driven by financial institutions, money managers and non-financial end users, combined with restrictions on dollar inflows and delays in central bank disbursements of foreign currency to currency exchange bureaus, contributed to the dollar depreciation. ‘Naira’s. ”