Abuja - A weak naira and
stubborn inflation may prevent Nigeria’s central bank from following
South Africa and Ghana in cutting interest rates.
Only two of 19 economists in a Bloomberg
survey predicted the Monetary Policy Committee will reduce borrowing
costs on Tuesday.
The rest said the key rate will stay at a record high
of 14%, where it’s been for a year. Governor
Godwin Emefiele, who is scheduled to announce the MPC’s decision at
about 14.30 in the capital, Abuja,
said last month that tight monetary policy will continue.
The central banks of
South Africa and
Ghana cut their key rates in the last week as the inflation outlook in
the two economies improved. While price growth in Nigeria, Africa’s
most-populous nation, slowed for a fifth consecutive month to 16.1% in June, it is still well above the government’s 6% to 9% target range.
“Inflation remains very high,”
Razia Khan, head of Africa macro research at Standard Chartered,
said in an emailed response to questions. “It would be wrong to
demonstrate too much complacency.”
Nigeria’s economy, which vies with South Africa’s as the biggest on
the continent,
shrank for a fifth consecutive quarter in the three months through March
as the oil industry contracted and agricultural growth slowed.
Keeping borrowing costs unchanged could help attract more flows into
the so-called Nafex currency-trading market, which the central bank set
up for foreigners in late April to try end a crippling shortage of
dollars.
While the naira is about 315 versus the US currency in the
official market, it’s weaker at
366.45 in the new window, about the same level as on the black market.
Goldman Sachs and JPMorgan Chase & Co are among Wall
Street banks that
say monetary policy needs to stay tight to protect the naira.
“The Central Bank of Nigeria will, in our view, maintain tight local
currency liquidity conditions, not least to provide support to the
naira,” JPMorgan analysts
Sonja Keller and
Yvette Babb said in a note to clients. “A policy rate cut would send the
wrong signal.”
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