- Inflation at decade-high, economy set to contract this year
- Central Bank of Nigeria to announce rate decision on Tuesday
Nigeria’s Monetary Policy Committee needs to cut interest rates to help boost the economy because it’s currently more important to focus on growth than on inflation, according to Finance Minister Kemi Adeosun.
“We would like to see the interest-rate increase that happened at the last MPC meeting reconsidered,” Adeosun said in an interview with broadcaster CNBC Africa Monday. “At the moment in the Nigerian economy, growth is the most important thing.”
West Africa’s biggest economy contracted by 2.1 percent in the second quarter from a year earlier and by 0.4 percent in the three months through March partly due to falling prices and production of crude oil, the main source of government revenue. The International Monetary Fund forecast the economy will shrink by 1.8 percent this year, the first full-year contraction since 1991.
The Central Bank of Nigeria, which is is scheduled to announce its latest decision on Tuesday, increased its benchmark interest rate by 200 basis points to 14 percent in July to attract foreign capital and prop up a currency that’s lost almost 40 percent of its value against the dollar since a currency peg was removed on June 20. The naira’s depreciation contributed to inflation accelerating to 17.6 percent, the highest rate in more almost 11 years, last month.
“The trade-off is what’s a bigger problem, is it growth or inflation?” Adeosun said. “For me it’s growth.”
Of the 17 economists surveyed by Bloomberg, eight forecast the benchmark rate will stay unchanged, one predicted a 100 basis point cut, and the rest said policy will be tightened by between 50 basis points and 200 basis points.