The Central Bank will increase dollar sales to support the economy and bolster the naira after leaving its key interest rate at a record high level.
“Interventions will be more vigorous and intense,” Governor Godwin Emefiele told reporters in the capital, Abuja, after announcing the Monetary Policy Committee’s decision to keep the benchmark rate at 14 percent. “Loosening monetary policy would exacerbate inflationary pressure” and reverse the naira’s gains on the parallel market, he said.
The central bank has kept borrowing costs at record high since July to prop up the naira that came under pressure after prices and output of oil, Nigeria’s biggest export, crashed in mid-2014, leading to dollar shortages and pushing the inflation rate to the highest level in more than 11 years. The decline in the crude production crippled West Africa’s largest economy, which shrank 1.6 percent in 2016, the first full-year contraction in a quarter of a century.
The naira has stabilized at about 380 per dollar for portfolio investors and on the black market, while the interbank rate is about 315. While the regulator removed a 197-199 naira per dollar peg in June, it continued intervening with sales of the greenback and blocked importers of certain products from accessing foreign currency on the official market.
The central bank “will not determine” the level at which it wants the naira’s various exchange rates to converge, Emefiele said. “We would prefer a convergence that goes significantly southward rather than northward.”
Nigeria’s foreign-exchange reserves have declined by 1 percent since reaching an almost two-year high of $31 billion on May 4. The central bank has sold more than $4 billion foreign currency since late February through the spot and forward markets. Dwindling oil revenues has put the regulator under pressure to shore up its reserves, Emefiele said.