The Central Bank of Nigeria held its key interest rate on Tuesday, opting to reassure jittery currency investors rather than cutting rates to help growth.
CBN governor Godwin Emefiele told a news conference in the capital Abuja that monetary policy members voted unanimously to keep the repo rate at 14 per cent.
“Conscious of the need to allow this and other measures, like foreign exchange reforms, to work through fully we decided to retain all monetary policy means at their current levels,” he said.
Nigeria is in recession as a result of plunging global oil prices and production — its main government revenue — following rebel attacks in the southern swamplands since the start of the year.
Economic weakness would favour easier monetary policy, but Nigeria has also been working to lure back investors who balked at a restrictive foreign exchange regime.
In June, the bank finally abandoned a controversial currency peg in favour of the open market after businesses complained of severe dollar shortages.
Emefiele said that after the CBN raised the rate at which it lends to commercial bank at the last meeting that capital flows had improved, with $1 billion coming into the country since July.
He said it was a priority of the bank to “deepen foreign exchange supply”, while acknowledging that “major” constraints on growth remain the challenges in the oil sector and vulnerabilities in the financial sector.
“We expect markets to be disappointed with this outcome,” Razia Khan, Standard Chartered Bank Africa economist, said in a note to AFP.
“Investors had been hoping for further gradual adjustment in the policy rate as a sign of the authorities’ commitment to fuller foreign exchange liberalisation,” she said.
“That has not necessarily been forthcoming today,” she added. “Improved inflows are needed to provide a more concrete safeguard against higher inflation.”