Nigerian Central Bank keeps interest rate at 11%, turns deaf hear to currency devaluation …

ABUJA, Nigeria, Capital Markets in Africa — Nigeria’s central bank Monetary Policy Committee (MPC) held the policy rate at 11 percent after lowering it from a record 13 percent in November 2015, Governor Godwin Emefiele informed reporters on Tuesday in Abuja, the capital. That was in line with economists and analysts expectations.

Emefiele said the twelve members of the bank’s Monetary Policy Committee voted unanimously to keep the rate unchanged. The bank also held the cash reserve ratio for commercial banks at 20 percent and the liquidity ratio at 30 percent. The MPC also, retained  the symmetric corridor of 200 basis points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points, around the MPR. 

 “The current episode of lower oil prices is expected to remain over a very long period,” the governor stated. “Consequently, it is imperative to brace up for a longer period of low government revenues from oil sources which will necessitate hard and uncomfortable choices.”

Furthermore, Inflation accelerated to a three-year high of 9.6 percent in December and has been above the central bank’s target of 6 percent to 9 percent since May 2015. However, core inflation declined for the third consecutive month to 8.70 per cent in November and December from 8.74 per cent in October 2015, while food inflation inched up to 10.32 per cent from 10.13 and 10.2 per cent over the same period.

On the economic outlook, the MPC also noted in the press release that economic growth in 2015 remained moderate and expected to continue on its growth path in the first quarter 2016, albeit less robust than in the corresponding period of 2015. This expectation is predicated on the current low global oil price trend which is projected to hold low over the medium-to long term, and with attendant implications for government revenue and foreign exchange earnings. Other downside risks to growth in 2016 include: capital flow reversal, high lending rates, sluggish credit to private sector and bearish trends in the equities market.

Nigeria’s central bank also turn deaf ear to the financial analysts clamoring for devalue the currency. The central bank has effectively fixed the naira at 197 to 199 per dollar since March. Even though, the currency was trading at about 300 naira per dollar on the black market on Tuesday. Foreign investors are seeking a depreciation to about 250, and an end to foreign-exchange trading restrictions before re-entering the country. In addition, the foreign-exchange controls are hurting U.S. companies’ ability to do business in Nigeria and are seen as a “barrier to trade,” Commerce Secretary Penny Pritzker said in an interview in the commercial capital, Lagos, on Monday 25th January 2016.

With the price of crude oil dancing around US$30 per barrel against US$38 per barrel in the 2016 Budget proposal, foreign investors are finding few positives in the country’s economy prospects. To be honest, a devaluation of the nation currency will further pressure the country’s macroeconomic fundamentals such as increase in inflation (as the country is import dependent), hence a rise in the interest rate (which may be counterproductive to local industry).  

The foreign reserve is now down to US$28 billion (lost about 17% since 2015), which is just about enough to cover the country’s six months’ worth of imports. So, the question is when will the central bank bows down to the pressure and devalue the naira?