Nigerian Central Bank Holds Key Interest Rate at 13%

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Nigeria’s central bank kept its benchmark interest rate unchanged at a record high before the incoming government of Muhammadu Buhari takes office in Africa’s biggest oil producer next week.

The Monetary Policy Committee left the rate at 13 percent, Governor Godwin Emefiele told reporters on Tuesday in the capital, Abuja. That was in line with the forecasts of 21 of 22 economists surveyed by Bloomberg.

“With less than two weeks to hand over to the new government, the central bank will want to know the policy direction of the administration and decide which monetary policy will be appropriate,” Ayodeji Ebo, head of research at Afrinvest West Africa Ltd. in the commercial hub, Lagos, said by phone. “The market needs that stability now.”

Nigeria is struggling to cope with an almost 40 percent slump in the price of crude in the past year that’s cut government revenue, eroded foreign-currency reserves and forced policy makers to devalue the naira. Inflation accelerated to 8.7 percent in April, close to the top of the bank’s 6 percent to 9 percent target.

Buhari will be sworn in on May 29 after unseating President Goodluck Jonathan in the March 28-29 election.

Protect Reserves

Nigeria’s foreign-currency reserves stood at $29.8 billion on May 15, down 21 percent from a year ago. The central bank, which raised the key rate for the first time in three years by 1 percentage point in November, has been depleting reserves to support the currency through the sale of dollars.

“The committee stressed the need for proactive measures to protect the reserves buffer, to safeguard the value of the domestic currency, and engender the overall stability of the banking system,” Emefiele said. The bank is “gradually approaching the limit of tightening, and will therefore require complementary fiscal and structural policies,” he said.

Nigeria’s economic growth slowed to 4 percent on an annual basis in the first quarter from 5.9 percent in the final three months of 2014 as the oil industry contracted.

The naira has lost more than 13 percent of its value against the dollar in the past six months, and was trading 0.5 percent stronger at 198.54 a dollar by 5:56 p.m. in Lagos.

The MPC also decided to set a unified cash reserve ratio -- the amount of money that banks must set aside with the central bank -- for public- and private-sector deposits at 31 percent, Emefiele said. Previously, the rate was 20 percent for private-sector funds and 75 percent for public funds.

The regulator does not intend to impose capital controls, Emefiele said.

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