Nigeria May Delay Interest Rate Cuts as Spending Rises

Nigeria’s plan to boost government spending is adding to pressure on inflation, making it difficult for the central bank to begin cutting interest rates in Africa’s biggest oil producer, a survey of economists show.

The Monetary Policy Committee, led by Governor Lamido Sanusi, will hold its key rate at a record 12 percent for a ninth consecutive meeting today, according to twelve of the thirteen economists surveyed by Bloomberg News. One analyst predicts a 1 percentage-point reduction.

While Finance Minister Ngozi Okonjo-Iweala pledged to curb spending, including on salaries, lawmakers raised the benchmark oil price in this year’s budget by $4 to $79 a barrel, providing more funds to the government to spend. Inflation eased to 12 percent in December, remaining above the central bank’s target of below 10 percent.

“The MPC will probably be worried that the possibility of fiscal consolidation doesn’t materialize at the pace that they would like,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd., said by phone from London. “They’ll wait until the budget is signed by the president for more clarity on the fiscal stance for this year.”

Sanusi is due to announce the rate decision at a press conference in the capital, Abuja, at 4.45 p.m., 15 minutes earlier than previously planned, the central bank said in a statement today. The committee will resume having two-day meetings from March, Ugochukwu Okoroafor, a spokesman for the central bank, said by phone today.

Growth Concerns

Inflation will probably ease closer to the central bank’s target this month as higher fuel prices that took effect in January last year falls out of the calculation, Sanusi said on Nov. 20.

Nigeria saves revenue above the budgeted oil price, and raising it from $75 currently would inject more liquidity into the economy. That may force the central bank to keep interest rates high, crimping investment, Okonjo-Iweala said on Oct. 10. The economy expanded 6.5 percent in the third quarter, down from 7.4 percent in the same period a year earlier, according to the statistics bureau.

The central bank’s aim is to bolster the naira to protect price stability, Sanusi said on Dec. 5. There’s no evidence lower interest rates will spur economic growth because power shortages and poor infrastructure were bigger deterrents to investment, he said.

“Although the MPC will appear concerned about growth, we doubt the recent slowdown can be reversed with lower interest rates,” Alan Cameron, an economist at CSL Stockbrokers Ltd. in London, said in an e-mailed response to questions.

Foreign Inflows

The central bank may reduce its key rate by 50 to 75 basis points later this year, Gadio said.

Record interest rates have spurred foreign investors’ demand for local bonds and equities, increasing the economy’s risk from capital outflows. Portfolio investment accounted for 76 percent of the $6.07 billion foreign inflows into Nigeria in the third quarter, the central bank said on Jan. 3.

The naira gained 0.5 percent against the dollar since the last MPC meeting on Nov. 20, and traded at 157.0999 by 1:54 p.m. in Abuja. The yield on 16.39 percent naira debt due January 2022 fell 488 basis points, to 11.25 percent, since the start of August, according to Jan. 18 prices compiled by the Lagos-based Financial Markets Dealers Association.