By Maram Mazen and Elisha Bala-Gbogbo
Nigeria's central bank kept its benchmark interest rate unchanged for the first time this year and devalued the naira and to help support growth in Africa's biggest oil producer.
The midpoint of the naira target band was lowered to 155 per dollar from 150, Governor Lamido Sanusi told reporters in the capital, Abuja, yesterday. The benchmark interest rate was left at a record 12 percent.
The Central Bank of Nigeria had raised its key rate at every meeting this year until yesterday, boosting it by 2.75 percentage points on Oct. 10 as inflation pressures mounted. Slower economic growth in Africa?s most populous nation and concern that oil prices may decline as the global recovery wanes gives Sanusi room to keep borrowing costs on hold.
"Monetary tightening was ahead of the curve and had been somewhat front loaded," Adedayo Idowu, an analyst at Vetiva Capital Management Ltd. in Lagos, said in an e-mail. The bank is "exercising deliberate caution in providing a soft landing for the domestic economy should global risks materialize."
Nigeria's economic growth slowed to 7.4 percent in the third quarter from 7.7 percent in the previous three months as oil output eased, the statistics office said on Nov. 15. The price of oil plunged 13 percent in New York in the first nine months of the year.
'Too Much' Tightening
"We need to be very careful about how much tightening is too much and how much tightening is too fast," Sanusi said.
Interest rates have been increased this year as inflation climbed above the central bank?s 10 percent target. Consumer prices rose 10.5 percent in October, up from 10.3 percent in the previous month, according to the statistics office.
Price pressures may increase next year as Nigeria prepares to remove a subsidy on fuel that costs the government $7.5 billion a year. The central bank will act to contain any "second-round" impact on inflation from the price shock, Sanusi said.
"It is clear from the Central Bank of Nigeria statement that monetary policy will remain tight in the interim," Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mail. This is the case "especially if fuel price subsidies are lifted and a secondary effect is evident."
The central bank, which manages the exchange rate by selling foreign currency at twice-weekly auctions, has been struggling to keep the naira at its official target of 3 points above or below 150 per dollar. The rate at yesterday's auction weakened to 155.21 naira per dollar. The naira fell 0.3 percent to 159.325 per dollar on the interbank market as of 9:16 a.m. in Lagos today.
"The market is already there, we haven?t moved away from where the market is," Sanusi said. "The investor wants to know how the naira is likely to move within the investment horizon, and what we're trying to do is to provide the right anchor for expectations." Bloomberg |