Nigerian CPI Thwarts Emefiele Rate Cut in Debut: Africa Credit

The fourth-straight month of accelerating inflation prevented Nigeria’s central bank governor from cutting interest rates at his first policy meeting since taking over the role in June.

Godwin Emefiele kept the benchmark at a record high 12 percent, matching the forecasts of all 15 economists surveyed by Bloomberg before today’s decision. The governor, who took over from Lamido Sanusi after he was suspended in February, said he intended to pursue a gradual reduction in interest rates, while maintaining exchange-rate stability.

While naira bonds returned 12 percent this year, the best after Turkey among 16 Europe, Middle East and Africa emerging markets tracked by Bloomberg, future gains may hinge on when Emefiele can start trimming borrowing costs. Consumer-price growth in Africa’s biggest economy was 8.2 percent in June, the highest level in 10 months, and security risks have risen amid increasing attacks by Boko Haram insurgents in the north.

The “compulsion to reduce benchmark interest rates may exist, but core inflation has firmed,” Raza Agha, chief economist for Middle East and Africa at VTB Capital in London, said in an e-mail yesterday. Monetary-policy caution is likely “particularly at a time when Nigerian domestic politics and the security situation implies risks remain elevated,” he said.

Reduce Rates

Developing-nation debt returned 4.8 percent this year, according to Bloomberg indexes. The naira gained 1.3 percent in the second quarter, the best three-month performance in seven periods, paring its 2014 loss to 1.2 percent. It traded 0.2 percent lower at 162.25 per dollar by 4:08 p.m. in Lagos.

Emefiele, 52, who until his appointment was chief executive officer of Zenith Bank Plc, announced the bank’s rate decision today in Abuja, the capital.

“As we begin to see that the macroeconomic levels are moving in the direction that we expect, you’ll begin to see the reversal of interest rates in the direction of going low,” Emefiele said. “We are optimistic of the mandate and the promise that we made to our people to bring down the interest rate.”

Nigeria is battling a five-year rebellion by Boko Haram, whose name means “western education is a sin” in the local Hausa language. The insurgents drew outrage with the April 14 abduction of 276 schoolgirls in the northeastern town of Chibok. At least 2,053 civilians died in about 95 Boko Haram attacks in the first six months of the year, New York-based Human Rights Watch said July 15. The country is holding a election in February and President Goodluck Jonathan hasn’t said whether he will run.

Exchange Rate

While inflation quickened, the rate has held within the bank’s target range of 6 percent to 9 percent and foreign-currency reserves are at a four-month high, giving room for the regulator to defend the naira at twice-weekly dollar auctions to commercial lenders.

“Emefiele, along with the clear majority of policymakers, stated his commitment to exchange-rate stability,” Gregory Kronsten and Olubunmi Asaolu, analysts with FBN Capital Ltd. in Lagos, said in an e-mailed note yesterday. “We therefore see the accumulation of reserves, and modest fiscal buffers, as a sound reason for an unchanged stance.”

Some MPC members may argue for a rate increase, according to FBN. The day after Emefiele’s June 5 speech on borrowing costs, the naira fell to a two-month low and Reuters reported he said the cuts wouldn’t happen until after February.

When the governor “talked in June about rate cutting, markets reacted sharply,” Alan Cameron, an economist at FCMB Group Plc, said in Abuja on July 15. “He quickly clarified his position to say it wasn’t going to happen immediately.”

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