Nigeria’s central bank kept its benchmark interest rate at 14 percent on Tuesday, resisting the finance minister’s call to lower borrowing costs, and its policymakers urged the government to spend more to drag Africa’s top economy out of recession.
The West African nation is going through its first recession in more than 20 years, brought on by low oil prices, and inflation accelerated to an 11-year high of 17.6 percent in August. The naira has traded at a record low of 425 to the dollar on the parallel market since last week.
Finance Minister Kemi Adeosun said on Monday the central bank should lower interest rates so that the government can borrow domestically to boost the economy.
But after raising the benchmark rate by 200 basis points to 14 percent when it last met in July, the monetary policy committee decided to leave it unchanged this month.
Central bank governor Godwin Emefiele said the MPC had considered calls for a rate cut but concluded that the biggest challenges the economy faces were “unsystematic and incomplete structural reforms” which raised “cost, risk and uncertainty”.
As well as defying Adeosun’s call for lower rates, the committee members told the government it should “intensify” infrastructure spending to stimulate growth.
“Members emphasised that improved fiscal activities, especially the active implementation of the 2016 federal budget, and payment of salaries by states and local governments would go a long way in contributing to economic recovery,” Emefiele said.
President Muhammadu Buhari took office in May 2015 with a promise to diversify the economy but critics say his government has done little in terms of concrete policies to end Nigeria’s reliance on oil revenues, which have collapsed.
Economists polled by Reuters last week had predicted that the central bank would keep its benchmark interest rate at 14 percent and reiterate its focus on resuscitating growth.
“The Central Bank of Nigeria disappointed our expectation for further gradual interest rate tightening,” Razia Khan, Chief Economist Africa at Standard Chartered Bank, said.
“While the MPC resisted giving in to political pressure to cut interest rates, and positive real market interest rates provide an important mitigant to the lack of further policy tightening, nonetheless, we expect markets to be disappointed with this outcome.”
But another economist praised the central bank (CBN) for shrugging off political pressure.
“CBN’s refusal to bow to government pressure is a notable sign of the institution’s independence,” said John Ashbourne of Capital Economics. (Reporting by Ulf Laessing, Alexis Akwaqyiram, Chijioke Ohuocha and Oludare Mayowa; Editing by Catherine Evans)