Weekend Argus (Saturday Edition)
BUSINESS Nigeria has little room to manoeuvre
Africa’s biggest economy hits tougher times
NIGERIA’S interest rates are set to remain stable this year as rising inflation leaves little room for easier monetary policy to stimulate growth in Africa’s biggest economy, a Reuters poll found.
Eighteen of 20 analysts expect the Central Bank of Nigeria (CBN) to keep rates at 11 percent on Tuesday and median forecasts for upcoming meetings suggested rates would remain unchanged this year.
The bank held rates in January after making its first cut for six years in November – of 200 basis points – to try to boost growth.
It also reduced the cash reserve ratio for commercial banks to 20 percent from 25 percent in November, a move designed to inject further liquidity, which is still lacking, into the banking system.
However, Pabina Yinkere, head of research at Vetiva Capital Management in Lagos, yesterday said he is expecting no change next week to the bench- mark rate, nor the interest rate corridor around it, or the cash reserve and liquidity ratios.
Inflation touched near a three-and-a-half year high of 11.4 percent in February. Consumer inflation is expected to average 10.1 percent this year before slowing to 9.4 percent next year.
“The worrying part is that the latest inflation figures were largely driven by cost push factors and not demand. Hence, tightening rates will have almost no impact on inflation,” Yinkere said. “Also, given the authorities’ rhetoric around the currency, we do not expect any move to adjust the naira rate.”
Still, the US Federal Reserve probably gave emerging markets a breather when it held rates on Wednesday, but South Africa increased its rates on Thursday as the currency put inflation under pressure.
Slumping commodity prices have also taken African currencies down with them, exposing the fundamental economic frailties of the world’s poorest continent by driving up inflation in countries that import most of their manufactured goods.
In response, President Muhammadu Buhari’s administration introduced capital controls to maintain stability in the naira which has the currency trading in a narrow path in the official market, though massively devalued in the black market.
Economists and analysts have been calling for a devaluation of the naira and a relaxation of the capital controls hurting manufacturers, especially those that need to import materials. “The offshore portfolio community ( foreign investors) wants devaluation but they are not currently the priority of the CBN,” said Gregory Kronsten, chief economist at FBN Capital.
Last year authorities implemented strict measures to protect the currency – blocking access to dollars for importing hundreds of items ranging from soap and toothpicks to cement and private jets.
The poll showed that economists expect growth of 3.2 percent this year, slightly better than last year’s 2.79 percent but far from the 6 percent in recent years and lower than the 3.8 percent forecast in January’s poll. Next year it is expected at 4.3 percent.
Exotix analysts wrote in a note that pressure is building on Buhari for a return to more orthodox policies.
The note added that for all the progress being made in oil sector reforms and security policy, the lack of investment and access to imports has hamstrung the corporate sector. – Reuters