Nigeria’s central bank kept the main interest rate at 14 percent as expected on Tuesday and pledged to close the gap between the official and black market exchange rate.
Central bank governor Godwin Emefiele said inflationary pressures were continuing unabated while Africa’s biggest economy was undergoing its first recession in 25 years, justifying the rate decision.
In a communique released he stated
”Background The Monetary Policy Committee met on the 20th and 21st of March, 2017, against the backdrop of persistent uncertainty in the global economy, stemming from economic and socio-political developments around the world. On the domestic front, while the Q4 2016 GDP figure was better than the last two consecutive quarters, the economy remained in recession with inflationary pressures continuing unabated. These adverse external and domestic conditions continued to complicate the policy environment.”
All but one of 13 economists surveyed in a Reuters poll had expected the bank to keep the benchmark rate on hold.
“The (Monetary Policy Committee) MPC appears to have resisted pressure from the fiscal authorities for what might have been a premature easing of policy,” said Razia Khan, chief economist Africa at Standard Chartered Bank.
“By holding rates, and putting price stability at the centre of its ambition, the CBN (central bank) could well be preparing for a more meaningful liberalisation, to come eventually, only when conditions are more conducive,” she said.
Emefiele also told reporters the central bank was optimistic that interventions in the foreign exchange market would stabilise the battered naira currency.
Nigeria has been suffering from dollar shortages due to low oil prices that have driven down the naira on the black market.
But the spread has narrowed since the central bank devalued the retail rate last month, and it has pumped more dollars into the banking system since then.
“We have seen the rates converging and we are strongly very optimistic that (they) will converge further,” Emefiele, speaking after a two-day committee meeting, said when asked about the spread between black market and official rates.
The central bank let the naira slip to 307.5 a dollar on the official market on Tuesday, weakening the currency by 0.6 percent in past two weeks but Emefiele said this was not a devaluation.
“The market is not meant to be fixed,” he said. “The market will move, sometime based on trend, from 304 to 305. It is supposed to be a sort of floating market … within a particular range.”
He gave no naira exchange rate target.
The central bank also kept its cash reserve ratios for commercial banks at 22.5 percent.
Emefiele warned traders betting on a further fall of the naira they were losing as the central bank had boosted foreign exchange reserve to almost $31 billion.
“The fact that we have done this (intervene) for four to five weeks should tell everyone, and those who doubt the strength of the central bank to sustain this policy, that they are taking a risk and they will lose,” he said.