Central Bank Seen Holding Rate in Pre-Vote Meeting

The Central Bank of Nigeria (CBN) will probably hold its policy rate at a record high, refraining from raising borrowing costs before next month’s presidential election even as the currency slumped to a record low.
The Central Bank of Nigeria will maintain the key lending rate at 13 percent, after raising it by one percentage point for the first time in three years in November, according to nine of 12 economists in a Bloomberg survey. Three others forecast increases of between 50 basis points to 1 percentage point. The Monetary Policy Committee is expected to announce its decision this afternoon in the capital, Abuja.
“The November MPC decision was the limit of what was politically possible prior to the election,” David Cowan, an Africa economist at Citigroup Inc., said by phone from London. “The question then was could they hold that line until afterwards, and, given inflation and given foreign exchange rates, it looks like they can.”
Nigeria, Africa’s biggest oil producer, is struggling to deal with a more than 50 percent drop in the price of crude in the past year, sales of which bring in more than two-thirds of government revenue.
At its November meeting, the MPC moved the naira’s official peg to a midpoint of 168 per dollar, from N155, and widened its trading band to five percent on either side from a previous three percent.

Correctly Valued
Central Bank of Nigeria Governor Godwin Emefiele said in a January 17 interview that the naira is correctly valued and there is “no reason to begin to take a look at it.”
The naira currency has lost more than 12 percent against the dollar in the past three months, the biggest decline among 24 African currencies tracked by Bloomberg over that period. It is down 2.7 percent since the start of this year, and traded at a record low of N188.53 per dollar by 7:20 a.m. on Tuesday in Lagos, the commercial capital.
Inflation (NGCPIYOY) accelerated to 8 percent in December from 7.9 percent in November, the National Bureau of Statistics said on January 13.
The regulator will want to maintain policy stability in the run-up to elections, after which it may consider further interest-rate increases, said Sewa Wusu, an analyst at Sterling Capital Markets Ltd. in Lagos.
“Businesses are still trying to adapt to new goals for the year based on measures announced two months ago,” he said by phone. “The budget has also not been passed. There is also an election just about a month away. I think the CBN will hold on for now and possibly revisit its policies after the election.”

Presidential Poll
In a presidential poll set for February 14, chief challenger and former military ruler Muhammadu Buhari will try to unseat incumbent Goodluck Jonathan, who is seeking a second, full term ruling the West African member of the Organization of the Petroleum Exporting Countries.
Emefiele, 53, took over as central bank governor in June, pledging to keep the currency stable and avoid raising rates before the vote. His promise has proved impossible to keep as oil prices tumbled.
While the central bank has stepped in to defend the currency, selling dollars outside its twice-weekly auctions, the interventions have reduced foreign reserves to $34.5 billion as of January 15, down 20 percent from a year ago.
On January 16, JPMorgan Chase & Co. said Nigeria’s debt may be cut from its local-currency emerging-market indexes.

Budget Cuts
Last month, Finance Minister Ngozi Okonjo-Iweala proposed cutting the 2015 budget by 8 percent. On January 13, the regulator eased rules implemented last month on buying and selling foreign exchange that were blamed for freezing the Nigerian currency trade.
“Despite significant monetary tightening and the devaluation of the official exchange rate in November, the macro backdrop facing the CBN remains challenging,” David Faulkner, sub-Saharan Africa economist at HSBC Bank Plc in Johannesburg, said by e-mail. Faulkner predicted the committee will lift the policy rate to 13.5 percent on Tuesday, and 14 percent by the end of the first quarter.

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