Will Nigeria hike rates next week? Analysts give their forecast

PUBLISHED: Sat, 19 Nov 2016 15:25:23 GMT

JOHANNESBURG, Nov 18 (Reuters) – The Central Bank of Nigeria will hold its benchmark interest rate at 14 percent at its Nov. 22 meeting with an aim to restore flagging investor confidence and an eye on rapidly-rising inflation, a Reuters poll found on Friday.

These two concerns will take precedence over stimulus for the battered oil-exporting economy, badly hit by recession in large part from the collapse in crude prices. The poll, taken this week, suggests the risk is rates may rise again.

Ten of the 15 analysts surveyed said rates will be kept on hold on Tuesday, but three forecast a 100 basis point rise and the other two opted for a 200 basis points hike to 16 percent.

“Inflation is a really serious problem and they still need to attract more money into the economy…some more foreign investment because they still have this big current account (deficit) to deal with,” said John Ashbourne, Africa economist at Capital Economics in London.

“After inflation is under control, then they can look at loosening policy again to support the economy.”

Inflation accelerated in October for the ninth straight month, to 18.3 percent, its highest in more than 11 years. The Reuters survey forecasts it to slow to 13 percent next year from an expected average of 15.5 percent this year.

In June last year, the central bank restored a free-floating currency from a 16-month peg but investors have shunned Nigerian assets and foreign exchange volatility has made it even more difficult for businesses.

In July the CBN hiked rates 200 basis points to bolster the battered naira, which has fallen 60 percent since it abandoned the peg that had the currency tied to around 197/dollar.

The government is still struggling to get the wheels of Nigeria’s economic engine turning again after these aggressive moves by the central bank intended to bolster the currecy.

The central bank kept its benchmark rate stable at 14 percent at its last meeting in September, resisting calls from the finance minister to cut it.

“It is not likely the CBN would have a justification to cut rates for a while to come, not before end of second quarter certainly, when inflation might have slowed to about 9 percent,” said Rafiq Raji, managing director at Macroafricaintel in Lagos.

The challenge is that Nigeria also is in serious recession, with the National Bureau of Statistics estimating a 1.3 percent contraction this year. The poll suggested a similar 1.2 percent contraction, followed by 2 percent growth in 2017.

However, Rand Merchant Bank noted that Nigeria could remain in recession for longer than anticipated if the banking sector fails to adapt to challenging market conditions.

(Reporting by Vuyani Ndaba; Editing by Ross Finley/Mark Heinrich)

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