The
Central Bank of Nigeria’s Monetary Policy Committee will leave interest
rates unchanged for the 17th time in a row on Tuesday as it tries to
balance controlling inflation and supporting the naira with fostering
growth, Reuters reported quoting its poll.
The MPC meeting will be the first chaired
by the new Governor of CBN, Mr. Godwin Emefiele, and will be closely
watched by foreign investors and analysts
,
The former group managing director of
Zenith Bank Plc struck a dovish tone on rates two days after taking
office in June, saying he would seek a gradual reduction in borrowing
costs, which have been stuck at 12 per cent since late 2011.
That is much higher than 5.75 per cent in
South Africa, which Nigeria overtook to become Africa’s largest economy
earlier this year, and 8.50 per cent in Kenya.
Investors perceived his comments to mark a
reversal of the hawkish policies implemented by his predecessor, Mr.
Lamido Sanusi, that were credited with curbing inflation and supporting
the currency, and sold bonds and the naira.
Emefiele has since said he will wait
until after the presidential elections next year before making any rate
cut, and all 20 analysts polled by Reuters in the past week expected the MPC to keep the benchmark rate steady at 12 per cent.
“Emefiele has laid out plans to cut rates
in the medium term (but) we do not see any chance of this happening at
July’s MPC, much less as inflation continues to creep up ahead of
elections,” a London-based economist at CSL, a Nigerian-owned CSL, Mr.
Alan Cameron, said.
Inflation in the continent’s biggest
economy rose to a 10-month high of 8.2 per cent in June, closer to the
CBN’s upper limit of nine per cent, after rising for four straight
months this year on higher food prices and excess liquidity.
The nation will hold national elections in February and government’s spending is projected to rise ahead of the polls.
“Higher risk premiums and fiscal
profligacy related to the election will keep pressure on the currency
and price growth and Emefiele and his team will not want to exacerbate
that by loosening policy too aggressively,” a sub-Saharan Africa analyst
at Business Monitor International, Mr. Matthew Searle, said.
Prices have started to rise and the naira has lost almost three per cent this year following Sanusi’s departure.
“With the recent compression in
fixed-income yields, as short-tenor maturities head south below the 10
per cent levels, the risks of negative real rates on Nigerian assets
will again resurface,” an economist at Vetiva Capital, Mr. Adedayo
Idowu, said.
Solid economic growth forecast for Nigeria this year gives further weight to tighter policy.
Last week, the government said it expected growth of 6.2 per cent in 2014, higher than revised 2013 growth of 5.5 per cent.
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