Nigeria keeps rate at 12% in last MPC before new Governor

Nigeria’s central bank kept its benchmark interest rate unchanged at a record high, stressing the need for stability in the last Monetary Policy Committee meeting before Godwin Emefiele takes office as governor.

The rate was left at 12 percent, Acting Governor Sarah Alade told reporters today in the capital, Abuja, matching the forecasts of all 11 economists surveyed by Bloomberg.

“The committee noted with satisfaction Nigeria’s overall domestic economic environment which has remained stable,” she said. “The key challenge for policy, in the committee’s view, was that of sustaining and deepening the outcomes of existing policies.”

Emefiele, 52, will take control of the central bank on June 1, with a mandate to keep the inflation rate, which reached 7.9 percent in April, inside the 6 percent to 9 percent target band.  Policy makers are also seeking to bolster Nigeria’s foreign-currency reserves, which have slumped 15 percent this year, adding to speculation the midpoint of the currency peg may be lowered from 155 per dollar. Reserves at about $38 billion covers nine months of import requirements, Alade said.

An erosion of fiscal buffers “has accentuated the regime of persistently high interest rates, elevated demand for foreign exchange and declining reserves accretation,” she said.

The naira weakened 0.6 percent to 163.48 against the dollar as of 3:08 p.m. in Lagos, the commercial capital, taking its decline this year to 2 percent.

Security Concerns

The MPC “remains rightly concerned about the erosion of fiscal buffers,” Razia Khan, head of Africa research at Standard Chartered Plc (STAN) in London, said in e-mailed comments. It “will need to remain vigilant, watching emerging risks closely, with a preparedness to act in the future.”

Alade also raised “elevated security concerns and anticipated high election-related spending” as risks to the outlook. Abuja suffered its worst-ever bomb attack last month when the Islamist militant group, Boko Haram, killed at least 75 people. Nigeria, Africa’s biggest economy and its largest oil producer, will hold elections in February 2015.

The central bank has kept its benchmark rate unchanged since November 2011. In March, the cash reserve requirement on private sector funds was raised by 3 percentage points to 15 percent, while in January, the limit was increased on public sector funds to 75 percent.