World Economy

Nigeria Keeps Rate on Hold to Rein In High Inflation

The economy’s return to growth has eased pressure  on the authorities.The economy’s return to growth has eased pressure  on the authorities.

Now that Nigeria’s economy is recovering from its worst slump in 25 years, the central bank can turn its focus to fighting inflation again—and shoring up its currency.

The Monetary Policy Committee has kept its interest rate at a record-high 14% since July 2016, trying to support the economy, and will probably hold it there at its decision this week to contain above-target consumer-price growth, Bloomberg reported.

Officials can take heart from a pickup in West Africa’s biggest economy in the second quarter after more than a year of contraction, as higher oil output boosted the supply of foreign currency to buy raw materials and food.

That upswing probably gives the MPC, led by Governor Godwin Emefiele, room to hold off on a rate cut, according to all except one of 16 economists surveyed by Bloomberg.

“The economy’s return to growth has definitely eased pressure on the authorities,” Gaimin Nonyane, the London-based economic-research head at Ecobank International Group, said in an emailed response to questions. High inflation and the “fragile” nature of the recovery “will continue to undermine prospects for a rate cut. As economic imbalances reduce, we might see policy easing in either November or the first quarter of next year.”

The economy expanded 0.6% in the second quarter, driven by growth in agriculture and in oil, which accounts for two-thirds of government revenue. It will take some time to return to above 5%, the level of economic expansion before prices and output of crude tumbled in mid-2014, Statistician-General Yemi Kale said in an August interview.

Improved dollar supply also helped ease inflation by reducing import costs, but at 16% in August, price growth remains outside the central bank’s target of 6% to 9%.

  Currency Control

Nigeria tightened currency controls soon after crude prices crashed in 2014, which exacerbated an economic crisis, hammered importers and deterred investment. While the central bank has eased some trading restrictions this year—including by creating a foreign-exchange window for investors in which the naira is meant to float freely—the country is still stuck with import curbs and a convoluted system of multiple exchange rates, with spreads stretching almost 20%.

President Muhammadu Buhari’s administration plans to increase spending to a record 7.4 trillion naira ($20.9 billion) this year, as part of a wider plan to boost the economic growth to 7% and create 15 million jobs by 2020 by pumping more crude, increasing farmlands and increasing infrastructure spending.

Meanwhile, Nigeria has recorded a significant rise in its non-oil export, with agricultural goods increasing the country’s foreign exchange earnings.

The National Bureau of Statistics recently reported that Nigeria recorded an export rise of 73.5% in the second quarter compared to the same quarter last year.

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