Nigerian central bank to slow rate hikes before elections
Nigeria’s central bank is poised to temper the pace of interest-rate increases after inflation unexpectedly slowed from a 17-year high in December, a sign that it may have peaked.
The first drop since November 2021 took the annual inflation rate to 21.3% and caused some economists to reconsider past predictions for an increase in borrowing costs. Others are forecasting that policymakers will significantly slow their most aggressive monetary tightening in 12 years, a month before Africa’s largest economy holds presidential elections.
Seven of 12 economists in a Bloomberg survey are calling a hike, with most predicting a 50-basis-point move and one a percentage-point increase. The rest see no change. The Central Bank of Nigeria has already raised its benchmark by a cumulative 500 basis points in just eight months to 16.5%, with its last increase of 100 basis points being in November.
“In our view, the CBN will continue its rate hikes this month” as inflation remains high, and the bank will want to continue to drive it downward, said Daniel Sodimu, sub-Saharan Africa analyst at FrontierView. “Following a notable slowdown in gross domestic product growth in the third quarter 2022, the monetary authorities will be wary of being too hawkish and undermining economic activity in 2023” and hike rates by 50 basis points to 17%, he said.
Economic growth decelerated more than anticipated to 2.3% in the three months through September from 3.5% in the prior quarter.
ELECTION PLEDGES
Nigeria has the 14th-highest inflation rate in the world among 120 nations, including the eurozone, tracked by Bloomberg.
The rate has also been at more than double the top end of the monetary policy committee’s 6% to 9% target since June, in a nation in which UNICEF warns 25 million people will go hungry this year and about 133 million live in extreme poverty — the most in a single country globally.
The three leading presidential candidates for Feb 25 polls, Bola Ahmed Tinubu, leader of the ruling All Progressives Congress, former Vice President Atiku Abubakar of the opposition Peoples Democratic Party and ex-governor Peter Obi of the Labour Party, have vowed to address the high cost of living.
Their proposals range from increasing agricultural production to tackling insecurity in food producing regions.
Obi has also promised to re-establish the independence of the central bank.
Governor Godwin Emefiele was hired to lead the central bank in June 2014, a year before President Muhammadu Buhari came to power, and was reappointed to a second five-year term in May 2019.
Emefiele has been one of the outgoing administration’s most influential figures in an unorthodox tenure during which the CBN has made major interventions in the economy, including propping up the naira, lending unprecedented sums to the government and extending credit to multiple sectors.
The central bank under Emefiele has “sacrificed most of its operational and regulatory independence” by “closely toeing the line of the current administration and being a major funder, extralegally, of its fiscal priorities — particularly on foreign currency demand management and industry-specific interventions,” said Ikemesit Effiong, head of research at SBM Intelligence.
In doing so, the bank has opened itself up to actions such as the investigation into Emefiele, Effiong said.
The governor is being probed by the secret police for alleged financial crimes related to the nation’s multibillion-dollar public lending programmes, according to a court affidavit. The banker’s defenders blamed the investigation on politicians opposed to the central bank’s recent currency reforms to control the amount of cash in circulation.
Another factor for tempering rate hikes would be market expectations for global central banks such as the US Federal Reserve to slow their pace of tightening amid the heightened risk of recession and moderating inflationary pressures, said Abdulazeez Kuranga, a senior analyst at Lagos-based Cordros Capital Ltd and Ayodeji Dawodu, head of Africa sovereign and corporate credit research at BancTrust & Co.
Slower global rate hikes would ease pressure on Nigeria’s MPC to bolster the differential that makes local assets attractive to foreign investors.
MPC members at the November meeting said one of the reasons for increasing rates was that they want to close the gap between inflation and the policy rate to further restore investor confidence.