World Bank Warns of Prolonged High Interest Rates in Nigeria, Angola, and Sierra Leone

Nigeria, Angola, and Sierra Leone are expected to maintain high interest rates for an extended period, according to the World Bank’s latest Africa’s Pulse report. With inflation soaring and domestic currencies weakening, these nations may even face further rate hikes in the months ahead, underscoring the region’s growing economic challenges.

The report highlights how inflation trends across Africa vary, with several countries already beginning to cut interest rates. However, for nations like Nigeria, where inflation remains stubbornly high, central banks are likely to take a “higher-for-longer” approach to monetary policy.

Nigeria, in particular, has seen inflation accelerate once again, reaching 32.70% in September—up from two months of declines—driven largely by rising fuel prices. The National Bureau of Statistics attributed this spike to the ongoing pressure from energy costs, which have outweighed the usual price-relief seen during the harvest season.

In a bid to curb inflation, Nigeria’s Central Bank raised its benchmark interest rate by 50 basis points to 27.25% at its last Monetary Policy Committee meeting. Yet, despite such measures, the World Bank suggests that further tightening may be required, warning that currency depreciation and inflationary pressures will keep monetary policy restrictive.

“Central banks in countries that still have double-digit inflation and weakened domestic currencies, such as Angola, Nigeria, and Sierra Leone, will keep monetary policy rates higher for longer,” the World Bank stated. The report noted that for these countries, inflation has yet to peak, meaning the possibility of further rate increases remains on the table.

The combination of currency weakness, sluggish fiscal adjustments, and rising costs is driving this prolonged monetary tightening. Nigeria’s naira, which has been among the worst-performing currencies in Sub-Saharan Africa this year, has depreciated by about 43% as of August 2024. This places it alongside the Ethiopian birr and South Sudanese pound as one of the region’s weakest currencies.

The World Bank attributes the naira’s sharp decline to surging demand for US dollars in Nigeria’s parallel market, coupled with limited dollar inflows and delays in foreign exchange disbursements by the Central Bank of Nigeria. Financial institutions, non-financial end-users, and money managers have all contributed to increased pressure on the naira as they seek out foreign currency amid mounting economic uncertainty.

Adding to the strain, measures to mitigate social unrest, such as Nigeria’s partial reinstatement of fuel subsidies and Angola’s doubling of the minimum wage, are putting further pressure on public finances. While these steps are designed to ease the high cost of living, they have compounded the fiscal challenges facing both nations.

As Nigeria continues to grapple with its economic vulnerabilities, the World Bank’s outlook serves as a stark reminder that the road to recovery may be long, with tight monetary policies set to remain a feature of the landscape for the foreseeable future.