With the aim of starting another contraction, the Central Bank of Nigeria (CBN) has increased banks' reserve requirements in order to store excess liquidity and increase the cash reserve ratio of 32.5% versus 27.5%.

On Tuesday, September 27, the Central Bank of Nigeria raised its key lending rate from 1.5% to 15.50%, the highest level since 2006, when the rate was introduced , in an aggressive effort to control inflation and ease pressure on the naira.

Indeed, in August inflation rose to 20.52% from 19.64% the previous month, the highest in 17 years. For its part, the naira weakened last Monday 26 at 720 naira to the US dollar on the parallel market. This leaves the gap between the black market and the official market at over 65%, the highest in six years.

So, the central bank hopes that raising interest rates will reduce the money supply in the economy and curb inflation. However, for analysts, this decision is also likely to slow economic growth. They say a higher interest rate will increase the cost of borrowing for businesses and could make goods and services even more expensive.

Economist Tope Fasua actually says: “We raised rates by 250 basis points in the last two meetings, but inflation has increased again. This means that our own inflation is not closely linked to interest rates and could fall in due course.”