MPC to Hold Rates on Hold for Now, to Rise in September … CBN to Hike to 13.25% in September, 13.75% in November

The Central Bank of Nigeria will leave interest rates on hold this week and instead wait until September to raise them, putting the timing of its next policy move in line with the United States Federal Reserve, a Reuters poll showed on Tuesday.
A majority of the 20 analysts polled in the last week said Nigeria’s central bank will hold rates on Friday at 13 percent, where they have been since November, and one of the highest benchmark borrowing rates in the world.
But the CBN will opt for a hike to 13.25 percent in September, the same month the Fed is widely expected to raise its federal funds rate for the first time in nearly a decade, from a much lower 0-0.25 percent.
“It (the CBN) is likely to be swayed by market reactions to a likely U.S. Fed rate hike in September,” said Rafiq Raji, an independent Africa analyst based in Lagos.
“A September-December 2015 window for a decision makes it more likely the CBN would decide on a potential naira devaluation at its September (meeting),” said Raji.
Nigeria’s weak currency in turn will put more pressure on inflation, which at 9.2 percent is already above the upper limit of the CBN’s target range.
That is likely to trigger another 50 basis-point rate rise to 13.75 percent at the central bank’s November meeting, the Reuters poll found.
The naira lost about 15 percent last year, with devaluations in November and February. The poll showed analysts expect the currency – currently around 199 per dollar – to weaken to 225.50 per dollar in a year.
Raji said a potential rate hike would probably be ineffective if not made in tandem with a naira devaluation, a move that would discourage demand for dollars and imports.
Authorities have recently focused on curbing access to hard currency on the official interbank market for importers of some goods, introducing stringent restrictions – but that has not gone down well with investors who have called for a relaxation.
JPMorgan, which runs the most commonly used emerging debt indexes, has said it will eject Nigeria from its Government Bond Index by year-end unless it restores liquidity to currency markets.
Nigeria’s economy relies heavily on its oil industry and the plunge in crude prices has done it no favours. Nigeria’s gross domestic product is expected to grow by just 4.4 percent this year and then 5.2 percent in 2016.
GDP grew by just under four percent in the first quarter of this year, a sharp slowdown from the same period last year. 

Leave a Reply

Your email address will not be published. Required fields are marked *