Nigeria May Keep Benchmark Rate at Record High to Bolster Naira

Nigeria’s central bank will probably keep its benchmark interest rate unchanged at a record high for a fifth meeting to support the naira and curb inflationary pressures.

The Monetary Policy Committee, led by Governor Lamido Sanusi, will hold the policy rate at 12 percent, according to 12 out of 13 economists surveyed by Bloomberg News. Sanusi is due to announce the decision at about 2:30 p.m. local time in Abuja, the capital.

The central bank of Africa’s top oil producer boosted its benchmark rate by 5.75 percentage points last year to help spur foreign investment and bolster the naira. Inflation in excess of the bank’s target of 10 percent is making it difficult for Sanusi to ease monetary policy even as Finance Minister Ngozi Okonjo-Iweala raised concerns earlier this month that borrowing costs are too high to support the economy.

“The central bank will only contemplate lowering rates once there is a little bit more confidence in the stability of the peg and once reserves are built a little bit higher,” Alan Cameron, an economist at CSL Stockbrokers Ltd, said by phone from London. “The exchange rate is definitely the top priority to the central bank.”

The naira has dropped 1.4 percent against the dollar on the interbank market since the last MPC rate decision on May 22, reaching its lowest level this year of 163.5 on June 15, according to data compiled by Bloomberg. The central bank sells foreign currency at twice-weekly auctions to restrict the naira at about 3 percent above or below 155 per dollar. Imports accounted for about a quarter of Nigeria’s gross domestic product last year.

Inflation Peak

Inflation in Africa’s most populous nation is accelerating as higher gasoline prices push up costs in the rest of the economy. The central bank expects the inflation rate, which rose to 12.9 percent in June, will peak at 14.5 percent in the third quarter.

The bank may decide on a “symbolic” rate cut by the end of the year, if the naira strengthens and inflation starts slowing in September, Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd., said in a telephone interview from London. Still, “a sharp cut by the MPC is probably unlikely in 2012 because the exchange rate is still under pressure and fiscal policy is quite loose.”

Nigerian lawmakers raised spending by 4.4 percent this year and boosted the benchmark oil price on which the budget is based to $72 a barrel from $70, giving the government more revenue to spend.

Finance Minister

Okonjo-Iweala said on July 2 commercial bank rates of 20 percent may be restricting private investment, undermining economic growth. Nigeria’s five-year and seven-year bond yields hit record highs at a debt auction on July 18, boosting government borrowing costs.

While economic growth is set to slow, a reduction in the benchmark rate may not help to spur demand on its own, the MPC said in May. Nigeria needs “structural reforms” in areas such as power, infrastructure and security to support long-term growth, the MPC said.

The statistics agency said in May the economy is forecast to expand 6.5 percent this year, down from 7.4 percent in 2011 and lower than the government’s target of 7.2 percent.

To contact the reporter on this story: Maram Mazen in Abuja at mmazen@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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