The CBN hiked the benchmark interest rate from 13.5 percent to 14 percent at its most recent Monetary Policy Committee (MPC) meeting in July in Abuja.
Following the simultaneous increase in interest rates, the World Bank Group on Thursday warned the Central Bank of Nigeria (CBN) and other central banks around the world of the possibility of a worldwide economic recession.
The CBN hiked the benchmark interest rate from 13.5 percent to 14 percent at its most recent Monetary Policy Committee (MPC) meeting in July in Abuja.
The apex bank in Nigeria earlier unexpectedly raised its monetary policy rate by 150 bps to 13 percent at its May 2022 meeting, against market expectations of 11.5 percent, bringing borrowing costs to the highest since April 2020.
It was the biggest rate hike since July of 2016, amid concerns that persistent inflationary pressures could weigh on the country's fragile recovery.
Inflation quickly rose to an eight-month high of 16.8 percent in April, well above the apex bank’s target range of 6 percent to 9 percent.
This was said to have been driven by high costs and supply-side constraints.
The interest rate reveals how high the cost of borrowing is, or high the rewards are for saving. For a borrower, the interest rate is the amount charged for borrowing money, shown as a percentage of the total amount of the loan.
Meanwhile, in a paper titled: ‘Risk of Worldwide Recession in 2023 Rises Amid Simultaneous Rate Hikes,’ World Bank Group President David Malpass stated that central banks' simultaneous hikes of interest rates in response to inflation will push the world economies toward a global recession in 2023, the Nation reports.
According to the World Bank, the decision would also cause a series of financial crises in emerging markets and developing economies, causing long-term harm.
The report analyses the recent trajectory of economic activity using knowledge from prior global recessions and gives forecasts for 2022 to 24.
According to the report, central banks around the world have been raising interest rates with a degree of synchrony not seen in the previous five decades—a pattern that is expected to continue far into next year.
It reads, “Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost four percent through 2023 -an increase of more than two percentage points over their 2021 average.”