New-Look Nigerian MPC May Repeat Hold Call on Interest Rates

(Bloomberg) -- Nigeria's Monetary Policy Committee will probably leave interest rates unchanged at its first meeting of the year even though the panel has added five new members since its previous gathering in November.

Inflation has been outside the central bank's target band of 6 percent to 9 percent for more than two years and exceeds the monetary-policy rate. While easing could boost expansion in West Africa's largest economy, which contracted in 2016, only two of the 11 economists in a Bloomberg survey said the committee will cut the benchmark interest rate from 14 percent on Tuesday.

The MPC, which failed to meet in January and postponed its March meeting, is expected to hold rates on Wednesday “as new members settle in their respective roles and continue to respond to the negative real rates situation,” Gaimin Nonyane, the London-based economic-research head at Ecobank Transnational Inc., said by email. “We see greater scope for a 100 to 200 basis-point rate cut between May and July.”

Read more about the delay of the Nigerian MPC meeting this year

These charts show the hurdles to easing monetary policy in Nigeria.

While inflation slowed to 14.3 percent in February, central bank Governor Godwin Emefiele has said the MPC could loosen policy before July if price growth drops nearer to single digits.

“Underlying inflation, that's without energy and food prices, has been sticky,” Michael Famoroti, an economist at Lagos-based Vetiva Capital Management Ltd., said by phone.

Policy makers retained the benchmark rate at a record high since July 2016 to help support the naira. While the currency has stabilized at about 360 per dollar and reserves increased, the central bank is wary of foreign-exchange pressures and regularly intervenes in the market to boost liquidity.

“We expect them to hold, and then start signaling policy intention for a cut by reducing frequency or rates of open market operation instruments” such as Treasury bill sales, Famoroti said.

Nigeria's current-account balance has been in surplus for the last five quarters and this should give the central bank leeway to support economic growth rather than the naira, according to Bloomberg Economics economist Mark Bohlund. However, that window may be closing as the recovery in domestic demand could erode the surplus, he said in a note.

--With assistance from Simbarashe Gumbo

To contact the reporter on this story: David Malingha Doya in Abuja at dmalingha@bloomberg.net.

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Karl Maier

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