Nigeria bucks Africa trend by cutting benchmark rate to 11%

Nigeria’s central bank reduced its benchmark interest rate for the first time in six years, diverging from its counterparts in most of Africa that have tightened monetary policy in the face of weakening currencies.

The key rate was cut to 11 percent from a record high of 13 percent, Governor Godwin Emefiele told reporters on Tuesday in Abuja, the capital. Seven of the 20 economists surveyed by Bloomberg predicted a lower rate, while the rest forecast it would stay unchanged.

Central Banks from Uganda to South Africa have raised interest rates this year to ward off inflation threats stemming from weaker currencies. Policy makers in Nigeria, Africa’s biggest oil producer, have protected the naira in the face of plunging crude revenue by imposing foreign-exchange restrictions instead.

Lower interest rates may help the government as it ramps up borrowing to finance its budget. President Muhammadu Buhari asked lawmakers last week to approve a supplementary budget for this year that seeks to raise spending by 10 percent and boost borrowing by an additional 1.6 trillion naira ($8 billion).

Inflation slowed for the first time in almost a year in October to 9.3 percent, staying above the bank’s target band of 6 percent to 9 percent. The economy expanded 2.8 percent in the third quarter from a year earlier, slightly higher than the 2.4 percent recorded in the previous month.

The cash reserve ratio was reduced to 20 percent from 25 percent, while the range around the monetary policy rate was changed to plus 200 basis points, minus 700 basis points.

(Source: BLOOMBERG)