Nigeria central bank holds key rate after months of limbo

“The committee decided unanimously” to retain the rate, said central bank governor Godwin Emefiele, who has hinted that a cut later this year was likely.

Inflation has been steadily coming down in West Africa’s largest economy and dollar reserves are up, opening the door for monetary policy easing, yet there are still concerns about foreign-exchange stability.

“We think that rates will be cut later this year but they’ll wait for inflation to ease a little bit before moving,” said John Ashbourne, Africa economist at London-based Capital Economics.

Emefiele said in January that he would look at cutting interest rates if inflation — currently well outside the target band of 9 percent at 14 percent — was moving closer to single digits.

“I want to think that between the end of the first and second quarter, we should begin to see easing,” Emefiele said in an interview.

A cut would boost economic activity by encouraging spending and see Nigeria join policymakers in South Africa, Ghana and Kenya, who have all cut rates this year.

“I don’t think they’ll wait until (the interest rate) is back within target,” said Ashbourne.

“He’s been making statements that are quite dovish so I think he’s chomping at the bit to make a cut.”

Nigeria is recovering from its worst recession in 25 years after the 2014 crash in global oil prices.

As a result increased crude production and higher prices per barrel, Nigeria’s economy expanded 0.8 per cent in 2017, but growth in non-oil sectors remains tepid.

– Political dysfunction –

Since its last meeting in November, several new members have joined the monetary policy committee, and they were finally approved by the senate at the end of March.

In a spat typifying political dysfunction in Nigeria, the senate refused to confirm the committee members in protest at President Muhammadu Buhari’s earlier appointment of anti-graft head Ibrahim Magu.

After being deadlocked for months, the senate finally “decided to do the right thing”, according to a senate source, and confirmed the new members.

“For now, the MPC remains concerned about the relative stickiness of food price inflation in Nigeria, notwithstanding weak demand, weak economic performance and weak credit growth,” said Razia Khan, Africa economist at Standard Chartered Bank in a note.

“It is clear that maintaining FX stability is paramount. The CBN will not do anything that is perceived to endanger this,” Khan said.

Nigeria’s “vulnerable” economy is expected to expand by 2.1 per cent in 2018, said the IMF in a March report.

Yet in the absence of meaningful economic reform, growth will be driven purely by the higher oil prices, which make the bulk of Nigeria’s foreign reserves.

“We’re getting increasingly bullish on the prospects of Nigeria,” said Neville Mandimika, Africa analyst at Rand Merchant Bank.

“But a big caveat to that is its more of a cyclical recovery rather than structural.”

The oil price crashed from more than $110 in mid-2014 to below $30 in early 2016. It has since recovered to well above $60.