Nigeria Central Bank Holds Key Rate, Expects Short Recession
Nigeria Central Bank Holds Key Rate, Expects a Short Recession
(Bloomberg) -- Nigeria’s central bank held its benchmark interest rate to allow previous cuts to flow through the economy, saying Africa’s largest economy should exit its recession by the end of this year.
All 10 members of the monetary policy committee who attended the two-day meeting voted to keep the rate at 11.5%, Governor Godwin Emefiele said Tuesday in a virtual briefing from the capital, Abuja. That matched the forecast of all seven analysts in a Bloomberg survey.
The pause following two cuts of 100 basis points each in 2020 highlights the central bank’s confidence that the nation’s second recession in less than four years will be short-lived, echoing remarks by Finance Minister Zainab Ahmed on Monday. The economy contracted 3.6% in the third quarter from a year earlier after crude output dropped to the lowest since 2016. Africa’s top crude producer cut production in order to reach full OPEC+ compliance.
Holding rates “will allow current policy measures to permeate the economy,” said Emefiele, the former head of Zenith Bank Plc. who is now in his second term at the helm of the monetary authority.
What Bloomberg Economics Says
“The decision reflects the committee’s desire to strike the right balance between support for the economy and the need to contain the country’s rising inflation pressures.”
-- Boingotlo Gasealahwe, Africa economist
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The twin impact of coronavirus lockdowns and the plunge in the price of oil hit the west African economy harder than most on the continent. Like other major economies in the region, Nigeria is running out of monetary space to stimulate economic growth even, as the pandemic pushed the whole continent into recession.
Emefiele’s projections for positive output growth in the fourth quarter, may be overly optimistic, according to Omotola Abimbola, an analyst with Chapel Hill Denham Securities Ltd.
“We do not see the possibility of a return to growth given the OPEC production cut weighing on the oil sector, and also weak foreign-exchange liquidity,” he said by text message. “We see a low probability of the economy exiting recession until the second quarter of 2021, at the earliest.”
Lower oil prices coupled with more than year-long land border closures to curb food smuggling have weighed on Nigerian exports and on the supply of some food products, adding to inflation.
Although inflation has been above the central bank’s target band of 6% to 9% for more than five years, and quickened for a 14th straight month in October, this should start moderating in the medium term, according to the MPC. Food-price growth, that has been a key driver, is expected to ease, Emefiele said.
The committee kept the cash reserve requirement at 27.5%, held the liquidity ratio at 30% and retained the asymmetric corridor, which means the cost at which lenders borrow is at 100 basis points above the monetary policy rate and the return on their deposits at 700 basis points below the benchmark.
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