The Central Bank of Nigeria left its benchmark interest rate at a record high for an 11th consecutive meeting to protect the currency as oil theft threatens to reduce government revenue and increase borrowing.
The Monetary Policy Committee kept the policy rate at 12 percent, Governor Lamido Sanusi told reporters today in Abuja, the capital. That was in line with the forecasts of all 14 economists surveyed by Bloomberg. The MPC also introduced a 50 percent cash reserve requirement on public-sector deposits.
Sanusi, 51, who won’t renew his contract when it expires in June, targets the naira to keep inflation under control. The currency of Nigeria, which vies with Angola as Africa’s biggest oil producer, has dropped 3.5 percent against the dollar this year, while foreign-currency reserves have declined as theft and vandalism of pipelines reduced oil output. The government relies on oil for about 80 percent of revenue.
“Principal risks remain, largely due to the loose fiscal stance and rising deficit, excess liquidity in the banking system and risks to the exchange rate due to a combination of revenue shocks and external developments,” Sanusi said. “The committee expressed strong concerns about the risks posed to government revenues from oil theft.”
A weaker currency may stoke inflation after it eased to 8.4 percent in June, the lowest level since April 2008. The central bank’s target is to keep consumer-price growth under 10 percent.
“The exchange rate is the focus,” Alan Cameron, an economist at FCMB Group Plc in London, said in a phone interview today. “Inflation they’re pretty sure is going to go down and they’re worried about fiscal policy in the context of what it could do to the exchange rate.”
The naira fell 0.3 percent against the dollar to 161.75 as of 3:28 p.m. in Lagos, the commercial capital.
Foreign-currency reserves declined 2.4 percent to $46.9 billion in July, according to central bank data. Oil output dropped to 1.83 million barrels a day in June, according to Bloomberg data, compared with the government’s target of 2.53 million barrels a day.
While inflation will probably remain below 10 percent over the next six months, the state of the government’s finances will likely lead to increased borrowing, Sanusi said.