Nigeria Central Bank Shouldn’t Rush to Cut Rates: Sanusi

Nigeria’s central bank shouldn’t rush to cut interest rates even as inflation is forecast to remain within target this year, Governor Lamido Sanusi said.

“How much room we have to cut depends on what happens” to government spending, Sanusi said in an interview in Marrakech, Morocco, where he is attending the annual meetings of the African Development Bank. The bank may even raise the policy rate or the cash-reserve ratio “if the level of spending becomes a threat to price stability.”

The Central Bank of Nigeria left its policy rate unchanged at a record high of 12 percent on May 21, concerned spending was poised to rise as the government battles Islamist insurgents in the northeast. The bank raised its cash-reserve ratio to 12 percent from 8 percent in July 2012. Inflation has stayed under 10 percent for four consecutive months, meeting the bank’s target.

Finance Minister Ngozi Okonjo-Iweala said last week lower interest rates may help spur economic output.

While the finance minister “is doing a great job in trying to rein in government spending,” the outlook is for “an increase in government spending” ahead of elections due in 2015, Sanusi said.

Biggest Risks

The economy probably expanded 6.7 percent in the second quarter compared with 6.6 percent in the previous three months, Sanusi said on May 21, citing figures from the National Bureau of Statistics. The central bank has identified the biggest risks to growth this year to include widespread insecurity, weak infrastructure and projected heavy rains and flooding in some parts of the country.

The inflation rate will remain under 10 percent this year “if it remains under 10 percent by October,” Sanusi said. The inflation rate rose to 9.1 percent in April from 8.6 percent in the previous month. The current policy-rate level has helped curb inflation and stabilize the exchange rate, he said.

“We are a price-stability central bank,” he said. “If we think inflation or exchange rates are at risk we take appropriate monetary response.”

The naira has declined 1.3 percent this year against the dollar, trading at 158.25 per dollar today on the interbank market in Lagos, the commercial capital.

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