The Central Bank of Nigeria left its benchmark interest rate unchanged for an eighth consecutive meeting as inflation exceeded the bank’s target.
Eight members of the Monetary Policy Committee voted to keep the policy rate at 12 percent, Governor Lamido Sanusi told reporters yesterday in the capital, Abuja. That was in line with the forecasts of 12 of the 13 economists surveyed by Bloomberg News. Two members voted to reduce the rate by 25 basis points.
Inflation, which slowed to 12 percent in December, is still above the central bank’s target of less than 10 percent. Africa’s top oil producer remains at risk to shocks that could arise from lower crude demand and a weaker exchange rate as well as price pressures from higher government spending, Sanusi said.
“We do understand that everybody wants rates to come down, the government wants rates to come down,” he said after the decision was announced. “But the central bank is primarily here to provide stability, and we will continue to maintain rates at whatever level we consider consistent with our price stability mandate.”
Rising government expenditure is adding to pressure on inflation. Lawmakers increased the benchmark oil price in this year’s budget by $4 to $79 a barrel, providing more funds to the government to spend. President Goodluck Jonathan hasn’t yet signed the budget into law. The country expects to produce 2.53 million barrels of oil a day this year, according to the spending plan.
Nigeria saves revenue above the budgeted oil price, and raising it would inject more liquidity into the economy. That may force the central bank to keep interest rates high, crimping investment, Finance Minister Ngozi Okonjo-Iweala said on Oct. 10.
“The committee reaffirmed its commitment to respond appropriately if public spending in 2013 ultimately adds to inflationary pressures,” Sanusi said.
The central bank expects the inflation rate to fall to about 10 percent this month as higher fuel prices that took effect in January last year falls out of the calculation, Sanusi said on Nov. 20. While headline inflation eased in December, Sanusi said core inflation, which excludes agricultural products, rose in the month.
Core inflation rose for a second month to an annual 13.7 percent in December from 13.1 percent in November, according to the National Bureau of Statistics.
“In all, we believe this was a good, measured decision, weighing up the differing economic risks faced by the Nigerian economy,” Razia Khan, the London-based head of Africa economic research at Standard Chartered Plc, said in an e-mailed note to clients after the decision. “The naira should continue to receive support from the current level of interest rates, while issuance plans and offshore appetite for Nigerian debt will remain key drivers of bond yields.”
The high policy rate has kept inflation in check, bolstered the naira when the global environment was unstable and built reserves, Sanusi said.
“It doesn’t make sense to just blame high interest rates for small and medium enterprises not getting access to credit,” he said. Even as the bank has been under pressure to lower rates and spur economic growth, there’s no evidence that would happen, as the biggest obstacles to borrowing and credit are lack of electricity, poor roads and other infrastructure that businesses need, he said on Dec. 5.
The economy expanded 6.6 percent in 2012, 0.8 percent lower than in 2011, Sanusi said today, citing figures by the statistics bureau. In the fourth quarter, output grew by 7.1 percent, slower than the 7.7 percent growth in the same period of 2011, Sanusi said.
The naira gained less than 0.1 percent to 157.1 a dollar in the interbank market by 6:34 p.m. in Lagos yesterday. The yield on Nigeria’s $500 million of Eurobonds, due in January 2021, gained 3.3 basis points to 3.745 percent, according to data compiled by Bloomberg. A basis point is equal to 0.01 percentage point.
The yield on 16.39 percent naira debt due January 2022 fell 494 basis points, to 11.19 percent, since the start of August, according to yesterday’s prices compiled by the Lagos-based Financial Markets Dealers Association.