CBN holds key rate at record-high 14% on inflation risks
Nigeria’s central bank held its main lending rate at a record-high 14 percent as it sees increased inflation pressure in the second half of the year.
Of the nine members of the Monetary Policy Committee who attended this week’s meeting, eight voted to leave the benchmark rate unchanged, Governor Godwin Emefiele told reporters in the capital, Abuja, on Tuesday. That decision matched the median estimate in a Bloomberg survey.
Lawmakers approved 2018 spending plans last week and President Muhammadu Buhari still needs to sign them off. The budget is more than 20 percent bigger than last year’s.
While aimed at boosting economic growth, the increase in expenditure before next year’s election “will eventually lead to inflationary tendencies,” Emefiele said. “It may reverse the course of inflation upwards and also put pressure on the foreign-exchange market.”
The central bank has held the rate since July 2016 in a bid to bring down inflation and prop up the naira. Price growth slowed to a two-year low of 12.5 percent, still above the authorities’ target band of 6 percent to 9 percent.
While Emefiele said in January the MPC may start to loosen policy before July if inflation moves closer to single digits, any possible easing may now have been moved out.
“Keeping the rate will increase attraction of the country’s assets and reduce the temptation to sell down by investors,” said Robert Omotunde, the head of investment research at Afrinvest West Africa Ltd. “The central bank might hold the rate until after the election in February if it thinks that a cut may not translate to more lending.”
One MPC member argued for a 50-basis-point increase, Emefiele said.
“He stood still and said he wants to tighten, but we will monitor,” Emefiele said. The committee “will also take action that will make sure that the adverse consequences that will arise from these expansionary activities does not impede our objective of bringing inflation down and achieving a stable exchange rate.”
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