Nigerian Central Bank Leaves Key Lending Rate Unchanged at 14%

LAGOS (Capital Markets in Africa) – Nigeria left its policy rate unchanged for a third consecutive meeting to support growth in an economy at its weakest in more than two decades and in which inflation is accelerating.

The Monetary Policy Committee held the benchmark interest rate at 14 percent, Governor Godwin Emefiele told reporters from the Abuja-based Central Bank of Nigeria on Tuesday. That was in line with the forecast of all 16 economists in a Bloomberg survey.

Nigerian President Muhammadu Buhari proposed a 20 percent increase in this year’s spending plans to stimulate growth and help the economy rebound after it probably contracted last year for the first time since 1991. The lower prices and output of oil, the west African nation’s biggest revenue earner, as well as shortages of foreign currency, contributed to the economy shrinking 1.5 percent in 2016, according to the International Monetary fund. The lack of dollars and the end of a currency peg, which caused the naira to weaken by about a third and fueled a discrepancy between the official and black-market exchange rates, led to more inflation pressure.

“The absence of any further policy measures on foreign-exchange liberalization suggests that the CBN” is comfortable holding rates, Razia Khan, head of Africa macro research at Standard Chartered Plc in London, said in an e-mailed response to questions before the announcement. “Although inflation has been pressured higher, further tightening would be more plausible if there was some expectation that it might trigger a positive response from offshore portfolio investors, and bring about greater foreign-exchange inflows. These plans look to have been put on the back burner for the moment.”

With increased investment in power generation, roads, rail, and ports, the government is targeting expanding the economy by 2.5 percent this year, and Finance Minister Kemi Adeosun has for months urged monetary policy makers to reduce interest rates to support growth efforts.  Interest rates have been at a high of 14 percent since July as the central bank struggled to balance supporting a weak economy with fighting inflation that reached an 11-year high of 16.8 percent in December.

Inflation in 2016 was driven by food costs and pressure on consumer prices remain, Emefiele said. The central bank is conscious of the need to stimulate the economy, he said.

Shortages of foreign currency have sustained the black market, where importers of items from rice to dairy products sourced dollars at rates about 30 percent higher than those on the official market. Vice President Yemi Osinbajosaid last week that the disparity in the rates is concerning, and authorities are considering measures to close the gap.