Nigerian Central Bank Set to Keep Key Rate at Record High

The Central Bank of Nigeria will probably keep its benchmark lending rate at a record high after President Goodluck Jonathan approved a budget that boosts spending in Africa’s largest oil producer.

The Monetary Policy Committee, led by Governor Lamido Sanusi, will hold its policy rate at 12 percent for a ninth consecutive meeting today, according to 10 of the 11 economists surveyed by Bloomberg News. Alan Cameron of CSL Stockbrokers Ltd. in London predicts a 50 basis-point cut.

Jonathan last month approved a budget that raises the benchmark oil price by $4 to $79 a barrel, a move that Finance Minister Ngozi Okonjo-Iweala and Sanusi warned could stoke inflation as it gives the government more funds to spend. Inflation accelerated to 9.5 percent in February from a 17-month low of 9 percent in the previous month.

“The key point for the central bank will be that fiscal policy is still loose,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd., Africa’s biggest lender, said in a phone interview from London.

Sanusi is scheduled to announce the decision in a televised press conference that begins at 3 p.m. in Abuja, the capital.

Inflation in Africa’s most populous country eased below 10 percent for the first time since August 2011, meeting the central bank’s target. Consumer prices will probably increase an average 12.9 percent this year, according to the budget office.

Naira Weakens

Sanusi said on Jan. 25 it will be “very difficult” to keep the inflation rate below 10 percent for the rest of the year. The MPC may hold off on lowering borrowing costs while it monitors government spending “and until we actually believe that inflation is coming down and lowering rates will not in any way undermine the tremendous achievements we’ve had,” he said.

Policy makers may also want to keep rates unchanged as the currency comes under pressure after foreign inflows slowed, Gadio said.

The naira has dropped 1.8 percent against the dollar this year and was trading as low as 159.64 yesterday. Since reaching a record low on Feb. 20, the yield on the 2022 bond has increased 104 basis points to 11.46 percent by March 15, according to prices compiled by Bloomberg.

“These dynamics will probably prevent the cut,” Gadio said. “You’re not going to have the same kind of large inflows that materialized in 2012 when the rates were very, very attractive.”

CSL’s Cameron said the central bank may respond to calls from the finance ministry and businesses to cut borrowing costs, though the higher benchmark oil price will limit the amount of easing.

“What they’re trying to tell the market right now is that we’re going to cut at some point,” he said in a phone interview from London. “We’re under pressure from the finance ministry and some other quarters to cut rates, so we’re going to begin to do that but we’re not going to do that very quickly.”

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

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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