Nigeria Holds Interest Rate at 2016 Low as Inflation Persists

(Bloomberg) -- Nigeria’s central bank retained its key interest rate to help fight inflation that persists outside the upper end of the target band.

The Monetary Policy Committee held the rate at 13.5%, Governor Godwin Emefiele told reporters Tuesday in the capital, Abuja. The median estimate in a Bloomberg survey was for a pause. This is the lowest since May 2016.

Key Insights

• The central bank unexpectedly cut its key rate in March, the first reduction in three years, to help boost economic growth. The economy of Africa’s biggest oil producer and most-populous nation is recovering from the 2014 crash in crude prices and grew by less than all estimates in the first three months of the year, with the crude industry contracting every quarter since mid-2018.
• Nine members of the 11 present voted for the hold, and two favored a 25 basis-point cut. In March, most members votes for reductions of either 25 or 50 basis points.
• Inflation remains remains above the upper end of the authorities’ target rage of 6 percent to 9 percent and price risks could elevate after a recently approved 67 percent increase in the national minimum wage.
• The committee called on the central banks’ management to provide a mechanism to limiting deposit banks’ access to government securities so that lenders’ focus will be oriented to providing funds to the private sector.

What Bloomberg’s Economist Says

“A higher oil price and financial inflows on the back of the local listing of telecoms firm MTN Group Ltd. should make the central bank more at ease about the naira’s peg to the U.S. dollar, laying the ground for cutting rates further during the remainder of the year. Governor Godwin Emefiele appears to have achieved a consensus for a gradual reduction in the policy rate, rather than the 100-basis point moves previously favored by the central bank. We expect the policy rate to be reduced to 13% by the end of the year.”

--Mark Bohlund, economist
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--With assistance from Paul Wallace, Tope Alake, Simbarashe Gumbo, Gordon Bell and Hilton Shone.

To contact the reporters on this story: Solape Renner in Lagos at srenner4@bloomberg.net;Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net

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

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