- Inflation exceeded 10% for first time in more than three years
- Economic growth under pressure after oil prices collapsed
The Central Bank of Nigeria unexpectedly raised its benchmark interest rate by 1 percentage point, reversing direction after inflation in Africa’s largest economy soared.
The Monetary Policy Committee increased its main rate to 12 percent, Governor Godwin Emefiele told reporters on Tuesday in the capital, Abuja. All 14 analysts surveyed by Bloomberg predicted the rate would remain unchanged at 11 percent.
Policy makers in Africa’s biggest oil producer had lowered the rate by 200 basis points in November to help support an economy hit by plunging crude prices. Rising food and power costs have boosted inflation since then to 11.4 percent in February, exceeding the central bank’s 6 percent to 9 percent target range.
“Reverting back to a tightening policy is contradictory to their decision at the last meeting,” Lanre Buluro, an equity broker and analyst with Primera Africa Securities Ltd., said by phone from Lagos, the commercial capital. “They have chosen to manage inflation rather than economic growth. The spike to 11.4 percent spooked the MPC.”
The cash-reserve ratio was raised to 22.5 percent from 20 percent. In November, the rate was lowered by 5 percentage points.
“The balance of risks has shifted against price stability,” the governor said.
Emefiele tightened policy in the face of a slowing economy and as he complained that banks aren’t extending enough credit to investors to spur growth. The economy expanded 2.8 percent in 2015, according to the statistics office, the slowest pace since 1999.
The central bank has tried to keep the naira and inflation stable by restricting foreign-exchange supply. The policy, which is backed by President Muhammadu Buhari, has led to the naira being pegged at 197 to 199 per dollar since last year. The currency is trading at about 320 per dollar on the black market.
Emefiele urged Nigerians to shun imported goods for local ones, saying that would ease pressure on the naira.
“We are yet to see any clear policy around foreign exchange,” Ayodeji Ebo, head of research at Afrinvest West Africa Ltd., said by phone from Lagos. “A 1 percent increase will not make me take a decision with the uncertainty around foreign exchange, where I’m open to illiquidity” in the currency market.