Economists expect Nigeria’s Central Bank to leave its policy rate unchanged for a fourth consecutive meeting to support growth in an economy at its weakest in more than two decades and in which inflation is accelerating.The Monetary Policy Committee due to meet on Tuesday is expected to hold the benchmark interest rate at 14 percent. The finance ministry has previously said adjustments were needed to narrow the spread between exchanges rates on the official and black market. The central bank devalued the rate for retail customers in February after Nigeria’s top economic advisory body called for an urgent review.
Central bank spokesman Olalekan Ajayi said:
“Godwin Emefiele reiterated the need for the country’s monetary and fiscal authorities to collaborate and harmonize standpoints so as to develop the economy rapidly.”
OPEC member Nigeria is in its first recession in 25 years, largely brought on by low oil prices. Crude oil sales account for about two-thirds of government revenue. Nigerian President Muhammadu Buhari proposed a 20 percent increase in this year’s spending plans to stimulate growth and help the economy rebound after it probably contracted last year for the first time since 1991.
The lower prices and output of oil, the west African nation’s biggest revenue earner, as well as shortages of foreign currency contributed to the economy shrinking 1.5 percent in 2016, according to the International Monetary fund. The lack of dollars and the end of a currency peg, which caused the naira to weaken by about a third and fueled a discrepancy between the official and black-market exchange rates, led to more inflation pressure.
With increased investment in power generation, roads, rail and ports, the government is targeting expanding the economy by 2.5 percent this year.
Finance Minister Kemi Adeosun has for months urged monetary policy makers to reduce interest rates to support growth efforts.
Interest rates have been at a high of 14 percent since July as the central bank struggled to balance supporting a weak economy with fighting inflation that reached an 11-year high of 16.8 percent in December.The central bank has faced criticism from investors for keeping Nigeria’s currency, the naira, at a rate some 30 percent above the black market, where entrepreneurs are forced to go for foreign exchange with the dollar scarce on official channels.
Shortages of foreign currency have sustained the black market, where importers of items from rice to diary products source dollars at rates about 30 percent higher than those on the official market.