The Central Bank of Nigeria has left the benchmark interest rate unchanged for a fourth consecutive meeting to balance lifting the economy out of recession 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 Abuja, on Tuesday. That was in line with the forecast of all 17 economists surveyed by Bloomberg.
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 of Nigeria removed a 197-199 peg against the dollar in June, causing the Nigeria 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, the Central Bank of Nigeria Governor 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.
“There is still concern about month-on-month rise in inflation,” Razia Khan, head of Africa macro research at Standard Chartered Plc in London, said in an emailed note. “There is concern that easing now would weaken the real rate of interest, and weaken the foreign-exchange rate.”
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 country’s 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 Delta rivers.
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.
Given that inflation is forecast to decelerate, and the need to support economic growth, interest rates might start coming down, according to Adewale Okunrinboye, an analyst at Asset & Resource Management Co Ltd.
“The Central Bank of Nigeria will be under pressure to cut interest rates by May,” Okunrinboye said.