The Central Bank of Nigeria (CBN) kept its benchmark interest rate at 11 percent on Tuesday and left the naira exchange rate fixed despite a dive on the parallel market.
Central Bank Governor Godwin Emefiele said the 12 members of the bank’s Monetary Policy Committee voted unanimously to keep the rate unchanged. The bank also held the cash reserve ratio for commercial banks at 20 percent.
Sixteen of 18 analysts polled by Reuters in the run-up to the Monetary Policy Committee meeting had expected the central bank to hold interest rates steady at 11 percent.
Emefiele announced there had been no changes to the official naira rate to the dollar which has come under tremendous pressure due to a drying up of vital oil revenues, Nigeria’s lifeline.
“The committee reiterated its unyielding commitment towards achieving a stable exchange rate regime to ensure more flexibility for sustainable inclusive economic growth in the medium to long term,” he said.
As commercial banks have run out of dollars, firms have been forced to go to the parallel market where a dollar fetches 305 naira in contrast to the official rate of around 197.
The central bank governor told reporters Nigeria was looking at “different scenarios” if the oil price dropped further but did not elaborate.
Non-deliverable currency forwards – short-term contracts used by counterparties to lock in a future exchange rate – fell on shorter dated contracts but rose for those one year out, indicating that investors believed Nigeria will have to devalue eventually, but was less likely to do so in the near future.
Emefiele also defended controversial import restrictions for hundreds of goods aimed at preserving the dwindling currency reserves. He said sales for locally produced food such as fish have been rising. “It has been positive,” he said.
“There is a plurality of policymakers who would like to see a devaluation but the president and central bank governor don’t seem to want it,” Alan Cameron, economist at Exotix in London, said
“I don’t think they will run out of reserves any time soon but the question is how much of a spread between official and parallel exchange rates will they tolerate. That in itself should bleed the reserves down in a year or so.”
