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Nigeria Leaves Key Rate at Record High as Inflation Persists

Nigeria Leaves Key Rate at Record High as Inflation Persists

(Bloomberg) -- Nigeria’s central bank left its key interest rate at a record high to fight inflation after the economy expanded in the third quarter.

The Monetary Policy Committee held the rate at 14 percent, Central Bank of Nigeria Governor Godwin Emefiele told reporters on Tuesday in the capital, Abuja. That’s in line with the predictions of all 14 economists in a Bloomberg survey.

Tight monetary policy helps to curb inflation and while lower rates would strengthen the outlook for growth, it could “aggravate the upward trend in consumer prices and generate exchange-rate pressures,” Emefiele said. “Loosening would worsen the current-account balance of the country through increased importation.”

The central bank has kept the monetary policy rate unchanged since July 2016, balancing the need to fight inflation and stabilize the naira with trying to support an economy emerging from its worst slump in 25 years. While price growth slowed to 15.9 percent last month, it’s been above the authorities’ target range for more than two years.

Nigeria Leaves Key Rate at Record High as Inflation Persists

“It is unlikely that we will begin to see any monetary easing soon,” Christopher Dielmann, a senior economist at Exotix Capital, said in an emailed note. “Assuming growth remains in line with expectations, our models suggest that we are unlikely to see a loosening of the MPR until inflation falls to 12 percent.”

Of the nine MPC members present eight voted to keep policy unchanged and one favored a 100 basis-points cut, Emefiele said. While the risks to inflation remains high, the committee sees price growth slowing to below 10 percent next year, he said.

Increased Liquidity

Policy makers have adopted a system of capital controls, multiple exchange rates and a trading window known as Nafex to stem a decline in the naira. While the complex regime has helped the official exchange rate converge with the black-market rate, the bank refuses to allow the naira to float freely. The Nafex trading window has led to great dollar liquidity, Emefiele said.

Economic growth accelerated to 1.4 percent in the third quarter from 0.7 percent in the three months through June, as the output of oil, Nigeria’s biggest export, increased. The non-oil sector contracted. Gross domestic product expanded 0.8 percent for the year, International Monetary Fund, after it contracted 1.6 percent in 2016.

“We do not expect to see any shift in monetary policy until growth is more broad-based and firmly in positive trajectory and inflation within tolerable limits,” Pabina Yinkere, an analyst at Vetiva Capital Management Ltd., said by email.

--With assistance from Simbarashe Gumbo Dulue Mbachu Emele Onu and Paul Wallace

To contact the reporters on this story: David Malingha Doya in Abuja at dmalingha@bloomberg.net, Tope Alake in Lagos at talake@bloomberg.net, Yinka Ibukun in Lagos at yibukun@bloomberg.net.

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Pauline Bax

©2017 Bloomberg L.P.