Nigeria Retains 14% Benchmark Interest Rate

by Ike Obudulu Last updated on August 26th, 2017,

Nigeria Retains 14% Benchmark Interest Rate. Nigeria left its benchmark interest rate unchanged for a fourth consecutive meeting to balance lifting the economy out of its worst slump in 25 years with fighting inflation that’s at almost double the government’s target. The Monetary Policy Committee held the key policy rate at 14 percent, Central Bank of Nigeria Governor Godwin Emefiele told reporters in the capital, Abuja, on Tuesday.

While inflation in Africa’s most-populous nation slowed for the first time in 16 months to 17.8 percent in February, it still exceeds the target range of 6 percent to 9 percent. Consumer prices surged after the central bank removed a 197-199 peg against the dollar in June, causing the naira to lose more than 40 percent of its value, and as a shortage of foreign currency made the import of everything from gasoline to food more expensive.

The slowdown in inflation in February was partly due to base effects, Emefiele said. Price pressures continue, and “loosening would exacerbate” them while tightening would portray the bank as “insensitive” to concerns about growth, he said. Nine of 10 MPC members voted to keep borrowing costs unchanged and one favored increasing the rate.

While the government’s plan proposes allowing a market-determined exchange rate, Emefiele said in a March 11 speech a free floating currency would increase the inflation rate and hurt the economy. The central bank has regularly sold dollars to keep the naira between 305 and 320 against the greenback over the past four months. Foreign-currency sales have helped the naira gain slightly on the black market to about 440 per dollar compared with a record-low of 520 last month.

“The sustainability of the Central Bank of Nigeria’s intervention in the foreign-exchange market depends to a large extent on what happens to oil prices and crude production. The central bank is optimistic that the official and black-market exchange rates will converge, Emefiele said.

The government said increased production of oil, Nigeria’s biggest export, will help to stabilize the foreign-exchange rate and provide more funds needed to stimulate the economy after it shrank by 1.5 percent last year, the first contraction since 1991. The government aims to boost output to 2.2 million barrels a day this year from an almost three-decade low of 1.6 million barrels a day in the third quarter of 2016 when disgruntled militants blew up several pipelines in the Niger River delta.

S&P Global Ratings spared Nigeria a downgrade and affirmed its B assessment, five levels below investment grade, with a stable outlook on March 17. The rating company said increased oil output and capital expenditure by the government will help the economy expand by an average of 3.4 percent annually through 2020. The government earlier this month released an economic blueprint to boost growth to 7 percent, create 15 million jobs and reduce the inflation rate to less than 10 percent by 2020.

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