Nigeria’s central bank took a vital step toward restoring confidence in the battered naira by aggressively raising interest rates and pledging to dig the country out of its present “mess.”

Announcing a much-bigger-than-expected 400 basis point rate increase to 22.75%, Governor Olayemi Cardoso said that the central bank was not responsible for the nation’s woes, but was working hard to put things right.

“We are part of the solution,” he told a media briefing in Abuja, the capital, on Tuesday after the monetary policy committee held its first gathering since July. “We are determined to ensure that we work hard to get out of the mess that Nigeria is in.”

Inflation has surged to almost a three-decade high and the currency is in free-fall, fanning a cost-of-living crisis as Nigeria tries to lure international capital while easing foreign exchange controls.

The governor “had to project certainty and resolve in returning the bank to its core mandate of price stability,” said Joachim MacEbong, senior governance analyst at Stears Insights. “He did that today, and the actual measures indicate that he will do all he can from his end to bring prices under control.”

Presiding over his first MPC meeting since taking the job in September, Cardoso said he was on a mission to address the “crisis of confidence” sapping trust in the nation after years of economic stagnation and policy mistakes.

“All we can do is do the difficult things to make a bad situation better,” he said. “I do believe that the efforts we are making are beginning to bring back confidence.”

The rate increase follows the naira’s second devaluation in six months and efforts by the central bank to clear a backlog of local dollar demand that’s been sapping the Nigerian currency.

Economists see that as a necessary condition to attracting foreign capital back to the West African nation’s economy, which President Bola Tinubu has pledged to reinvigorate since taking office in May.

With price growth at 29.9%, the move brings Nigeria’s inflation-adjusted, real rate of interest closer to positive territory, especially with the prospect for more tightening at hand. The central bank’s next policy meeting will be held March 25-26.

“Investors will see it as very positive. There has been a call for effective monetary tightening,” said Ayodeji Dawodu, director of fixed income for Central and Eastern Europe, Middle East and Africa at Banctrust Investment Bank Ltd. in London. “It is a start in interest rate hikes, with the next question being how high it can go from here.”

Following the decision, investors increased bets the naira would strengthen going forward, according to pricing in futures markets.

Tinubu installed the governor as part of a complete makeover of the leadership of the central bank after ousting the previous chief, Godwin Emefiele, who has since been charged with fraud. He denies the allegations and his trial in ongoing.

The central bank is a key tool in Tinubu’s efforts to reform the economy.

Shortly after taking office in May, the president announced the abolition of widely-criticized fuel subsides and the easing of currency controls to boost growth and attract dollar inflows.

His decisions were welcomed by international investors but have caused pain at home with the spiraling cost of living sparking protests.

The Nigerian Labour Congress, the main union for workers in the country, staged demonstrations against increasing hardship and insecurity in Lagos and several other cities on Tuesday.

 

Bloomberg