Nigeria's central bank raised its benchmark
interest rate for the first time in three years and
devalued the naira as tumbling oil prices sent
the currency to an all-time low.
The regulator lifted the rate by 100 basis points
to a record high of 13 percent in its penultimate
meeting before national elections, Governor
Godwin Emefiele told reporters today in Abuja,
the capital.
Only one of nine economists surveyed by
Bloomberg estimated the exact increase. Six
predicted the bank would hold the rate at 12
percent. The naira's official peg was moved to
a midpoint of 168 per dollar, from 155, and its
trading band widened to 5 percent either side
from a previous 3 percent.
"The current challenge requires bold policy
measures, moves on both the demand and
supply sides of the foreign exchange market,"
Emefiele told reporters in the capital, Abuja.
Emefiele, 53, became central bank governor in
June with a pledge to keep the currency stable
and avoid raising interest rates before Africa's
most populous country votes in February. His
promise has proved difficult to keep as slumping
crude prices erode government revenue in
Africa's top oil producer.
"It highlights the seriousness of the situation,"
Ridle Markus, an Africa strategist at Barclays
Africa Group Ltd. who forecast the rate
increase, said by phone from Johannesburg.
"This will provide some comfort that they're
willing to take the measures necessary to
ensure stability."
Cash Reserve
The central bank also increased the cash
reserve requirement on private sector deposits
by 500 basis points to 20 percent.
"The current downturn in oil prices is not
transitory but appears to be permanent, being a
product of technological advances," Emefiele
said. The government's suggested budget
benchmark oil price of $73 per barrel for 2015,
down from $77.5 this year, may be "overly
optimistic," he said.
The naira is being overwhelmed by a drop in
prices for oil, the biggest foreign-exchange
earner, with the currency weakened to a record
low of 178 per dollar on Nov. 24. While the
central bank has stepped in to defend the
currency, selling dollars outside its twice-weekly
auctions, the interventions have reduced foreign
reserves to a five-month low of $37.2 billion.
Naira Weakens
The currency weakened 1.9 percent to 177.26
per dollar at 3:56 p.m. in Lagos trading. It has
lost more than 7.6 percent this quarter, the
deepest decline among 24 African currencies
tracked by Bloomberg after Malawi's kwacha
and Gambia's dalasi.
Taking aggressive steps now would obviate the
need to make even more dramatic moves later,
when reserves may be even lower, Emefiele
said.
"While Nigeria cannot do much to influence the
oil price, the combination of measures today
sends a powerful signal to all stakeholders on
the CBN's intent to do what it can to preserve
macroeconomic stability," Razia Khan, head of
Africa research at Standard Chartered Bank Plc
in London, said in e-mailed comments after the
decision.
Nigeria's government is planning to cut
spending by 6 percent next year in response to
lower oil prices, Finance Minister Ngozi Okonjo-
Iweala said Nov. 16. Okonjo-Iweala's
announcement followed Emefiele's pledge to
continue defending the naira. Oil accounts for
70 percent of government revenue.
The rate-setting Monetary Policy Committee last
adjusted the benchmark rate in October 2011,
when then-Governor Lamido Sanusi increased it
by 275 basis points.
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