Nigeria c-bank governor says rates should not be cut in a rush

By bne IntelliNews May 28, 2013

Nigeria’s central bank shouldn’t rush to cut interest rates despite the fact that inflation is expected to remain within its single-digit target this year, governor Lamido Sanusi told Bloomberg. The governor added that a potential rate cut should depend on what happens in the fiscal space and whether the government would be able to control spending.

Last week, Nigeria's central bank retained its monetary policy rate (MPR) at 12% for a 10th time in a row, but said that a rate cut was on the table. It noted that a reduction in rates had been considered in view of declining core inflation, stable exchange rates and relative reserve accretion, but was rejected as premature in view of potential risks posed by a possible rise in fiscal expenditure in the short-to-medium term, which could lead to heightened inflationary pressures. The central bank then said it is aware of the sustained pressure to ease its monetary policy stance, but it also believed that in view of the successes achieved on all fronts - banking stability, low inflation, exchange rate stability, strong reserve buffers and recovery in the equities market - there was no reason to change a policy that had worked so well. Nigeria’s Finance Minister Ngozi Okonjo-Iweala said last week the economy needs lower interest rates to stimulate growth.

Nigeria’s economy expanded by 6.6% in Q1 and the National Bureau of Statistics (NBS) has forecast a real GDP growth rate of 6.7% for Q2. The country’s annual headline inflation increased to 9.1% in April from 8.6% in March, but remained within the central bank’s single digit target for a fourth consecutive month.

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