Faced with a contracting economy, surging inflation and a rigid exchange rate, Nigeria’s central bank will have little choice but to keep its key interest rate unchanged on Tuesday.
The Monetary Policy Committee led by Governor Godwin Emefiele has held the policy rate at 14 percent since July and is unlikely to make a change, according to all 16 economists and analysts surveyed by Bloomberg.
Foreign-exchange policy has become a common agenda-item for the committee as the nation maintains a managed currency float and has stopped importers of goods it deems non-essential from buying dollars on the official market. While this has contributed to a rapid increase in consumer prices, Emefiele said on March 11 that allowing the naira to freely float will hurt the economy, which shrank by 1.5 percent last year, the first contraction since 1991.
“They won’t cut because inflation remains high, and they won’t hike because that will undermine growth,” Yvonne Mhango, an economist at Renaissance Capital, said in an emailed response to questions. They will only “adjust upwards, if they allow for more flexible foreign-exchange policy that results in the naira weakening.”
Limited foreign currency available to import motor fuel and food contributed to inflation accelerating to the highest rate in more than 11 years in January. While price growth slowed for the first time in 16 months to 17.8 percent in February, it’s outside the government’s 6 percent to 9 percent target.
Bloomberg
