Nigerian Central Bank Holds Key Rate as Inflation Ticks Up

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The Central Bank of Nigeria held interest rates as it remains concerned about a persistent increase in inflation.

Of the 10 members of the monetary policy committee who attended its meeting, eight voted to keep the rate unchanged at 12.5%, Governor Godwin Emefiele said at a briefing in the capital, Abuja, on Monday. That matched the median estimate of seven economists in a Bloomberg survey.

Nigerian Central Bank Holds Key Rate as Inflation Ticks Up

Key Insights

  • The unchanged stance could help prevent a further weakening of the naira, after the central bank devalued the official exchange rate to 381 per dollar earlier this month. The drop in the currency, a renewed move from the central bank to limit access to foreign exchange, border closures and clashes between herders and farmers have pushed inflation to 12.6%, the highest level since March 2018.
  • Africa’s largest economy was hit by the double whammy of the oil-price crash and the coronavirus pandemic this year. Crude accounts for almost 90% of exports and more than half of government revenue. The price drop is squeezing government finances and the availability of dollars.
  • It will be “a relatively cautious option to hold,” Emefiele said. The 100 basis-point cut the MPC announced in May is working through the economy and the MPC is optimistic that the contraction in gross domestic product for 2020 will be small, followed by a strong recovery next year, he said.
  • Hamstrung by high inflation from aggressively cutting the benchmark rate, the central bank has introduced measures, such as a moratorium on loan-interest payments, reducing lending rates for critical sectors and intervention funding to stem the negative economic impact of Covid-19.

What Bloomberg’s Economist Says:

“The efforts to accelerate credit extension in the economy will not do much if the CBN is going to uphold and tighten foreign-exchange restrictions. This will further undermine growth by hampering economic activity and accelerate the increase in the headline inflation print.”

--Boingotlo Gasealahwe, Africa economist

For more, read Bloomberg Economics’ full overview about sub-Saharan African monetary policy.

©2020 Bloomberg L.P.

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