Business

Nigeria expected to hold interest rates

Daniel Magnowski, Emele Onu

Africa's largest economy is expected to keep rates unchanged on Tuesday in the last meeting before a new central bank governor steps in.

The MPC meeting is the first since Nigeria recalculated the size of its economy which put it ahead of South Africa. (Reuters)

Nigeria’s central bank will probably keep its benchmark rate unchanged in the final Monetary Policy Committee meeting before governor Godwin Emefiele takes office.

All 11 economists surveyed by Bloomberg predicted acting governor Sarah Alade will hold the key interest rate at a record 12% to help keep inflation under control. Alade is scheduled to announce the decision at a press conference in the capital, Abuja, that begins at about 2pm local time.

“The interest rate will likely remain the same as macroeconomic conditions remain fairly stable,” Mike Nwanolue, an analyst at Lagos-based Greenwich Trust Group, said by phone. “I don’t see the monetary policy committee taking any decision that may unsettle the incoming governor.”

Emefiele, the 52-year-old former chief executive of Zenith Bank, will take over at a time when foreign-currency reserves are falling, undermining the central bank’s ability to maintain the midpoint of the currency peg at 155 per dollar. Inflation has so far been contained at 7.9% in April, staying inside the bank’s 6% to 9% target band.

“Inflation remains in single digits, so there is no immediate pressure to do anything,” Razia Khan, head of Africa research at Standard Chartered in London, said in an emailed response to questions. “As this is Dr Alade’s last meeting as acting governor, with a new governor to join in June, we do not expect any big policy changes.”

Weaker currency
The MPC meeting is the first since Nigeria recalculated the size of its economy to 80-trillion naira, which put it ahead of South Africa as the continent’s largest. It also comes a month after bomb attacks in Abuja killed at least 75 people, prompting concern among investors in Africa’s biggest oil producer.

The naira has dropped 1.4% against the dollar this year to trade at 161.60 as of 4.32pm in Lagos, the commercial capital.

Alade took over as a caretaker after President Goodluck Jonathan suspended governor Lamido Sanusi in February for alleged financial wrongdoing, claims that Sanusi denied. The unexpected move prompted the currency to drop to a record low as investors worried that the independence of the central bank will be compromised.That added to speculation by companies such as MTN Group and United Bank for Africa that policymakers will devalue the currency. 

Foreign reserves slumped 15% since the beginning of the year to $37.6-billion as of May 15. In his testimony before lawmakers in March, Emefiele said a devaluation was “not an option”.– Bloomberg

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