CBN to halt rise in interest rate this week

By Ihesiulo Grace

21 March 2016

Business

The Central Bank of Nigeria has put on hold its intention of raising interest rates this week as the U.S Federal Reserve held back expectations for a tighter policy to keep afloat emerging-market currencies.

Before the U.S FR decided to take a pause, Nigeria, including Kenya and Ghana, were set to announce interest-rate decisions after taking different policy options in 2015.

This week, Nigeria and others will probably hold, according to analysts surveyed by Bloomberg.

From Zambia to South Africa, African currencies were among the worst hit by a slide in investor sentiment towards emerging and frontier markets last year. Now, investors have reduced their expectations for further U.S rate increases and commodity prices recovered from a 16-year low, restoring some of the appeal of emerging markets and pushing up African currencies.

South Africa’s Reserve Bank increased its benchmark repurchase rate for the third consecutive meeting last week, saying the rand’s 25 percent plunge against the dollar and rising food prices due to worst drought in more than a century pose upside risks to its inflation outlook. Its price growth then accelerated to 6.2 percent in January, exceeding the central bank’s 3 percent target band.

Ghana and Kenya, which are due to announce rate decisions on Monday kept their benchmark rates at 26 percent and 11.5 percent respectively.

According to economists, the Central Bank of Nigeria will probably maintain its key interest rate unchanged at 11 percent today, Tuesday.

Governor Godwin Emefiele slashed the policy rate by 200 basis points in November to stimulate an economy which expanded at the slowest pace in 16 years in 2015. The CBN’s pegging of the naira at 197-199 per dollar in the past year, has pushed price growth by leading to dollar shortages and causing the black-market exchange rate to plunge and the inflation rate rose to double digits in February for the first time since 2012.

Standard & Poor’s Rating Services revised Nigeria’s outlook to negotiate from stable on Friday, saying the nation’s foreign currency policy, was creating “dislocations” in product and financial markets. The agency affirmed its B+/B rating, according to an e-mailed statement.

Speaking on how Nigeria’s economy can bounce back after the slump, Ashbourne and others advised the Federal Government to relax its grip on exchange controls, saying government’s attempt to play with rates, would make things worse.

“We expect that at some point the government should loosen exchange controls, but there is no guarantee they will do that,” Ashbourne said. “Tinkering with rates in Nigeria would make things much worse. It’s in a different situation than Kenya and Ghana where inflation is slowing down and growth is picking up”, he said.