The Central Bank of Nigeria's decision to lower its Monetary Policy Rate by 350 basis points to 23% has reduced the gap between the benchmark rate and headline inflation to 7.61 percentage points, leaving Nigeria behind Ghana as a destination for carry-trade capital inflows.
A Nairametrics comparison of selected East and West African economies shows Nigeria's policy rate now sits 7.61 percentage points above its 15.39% headline inflation. Ghana, by contrast, maintains a 14% policy rate against 5% inflation, producing a wider differential of 9 percentage points. Although Nigeria still holds the highest nominal policy rate among the peer group, its effective cushion for real returns is smaller than Ghana's.
Among other African peers, South Africa reports a 7% policy rate and 4.30% inflation, leaving a gap of 2.70 percentage points, while Kenya's 8.75% policy rate against 6.59% inflation leaves a 2.16 percentage-point gap. The figures illustrate that nominal rates alone do not determine capital-flow attractiveness; Ghana's substantially lower inflation more than offsets its lower policy rate.
Measured against advanced economies, Nigeria's positive differential remains unusually wide. The United States shows a gap of roughly 0.35 to 0.60 percentage points, with a policy rate of 3.75% to 4.00% against 3.40% inflation. The United Kingdom's gap stands at about 0.65 percentage points, while the Euro Area, Canada and Japan all show negative gaps.
Bismarck Rewane, chief executive of Financial Derivatives Company, said the rate reduction still leaves Nigeria strongly attractive for carry trade. He noted that the real rate of return available to investors fell from about 11.1% to 7.61%, which remains significant. "We were previously at more than 11 percentage points; we are now at about 7 percentage points," he said, adding that returns on United States investments could still be lower after inflation than those available in Nigeria.
Rewane said a US investment offers a positive real return of about 0.475%, the UK about 0.65%, and Europe a negative return, stating he would prefer Nigeria's 7.61% positive real return. He observed that the naira's immediate reaction to the cut was muted, staying flat at about N1,387 in the parallel market and briefly touching N1,390 before settling back.
