LAGOS (Reuters) - Nigeria’s central bank will leave its benchmark interest rate unchanged on Tuesday to try and curtail high inflation as Africa’s top economy grapples with its first recession in 25 years, a Reuters poll found on Friday.
But in a sharp turnaround from a January survey, the median from the poll projects a 100 basis-point cut to 13.0 percent in the third quarter and an identical chop in the last months of 2017. In January, no cuts were predicted this year.
The change in view comes just days after the United States Federal Reserve increased borrowing costs, prompting many other central banks to follow suit.
One of the 13 economists polled said a cut would come next week but the remaining 12 said the rate would be kept on hold.
“While the CBN is keen to boost lending, we think we will need to see a more decisive improvement in inflation for the CBN to proceed with policy easing,” said Razia Khan, chief economist Africa at Standard Chartered Bank.
Annual inflation eased for the first time in 15 months to 17.78 percent in February, its lowest level in 15 months, from January’s 18.72 percent. But this was not enough to ease monetary policy, according to Khan.
She said markets would watch for signs of a more relaxed foreign exchange rate regime after the government floated a reform plan calling for “market-determined” rates.
The government announced its “Economic Recovery and Growth Plan” earlier this month as Nigeria wants to apply for a World Bank loan to plug a budget deficit resulting from a sharp fall in oil revenues, the country’s lifeline. It gave no details or time frame.
Investors want to know if the central bank will adopt a more flexible exchange rate regime after it devalued the retail rate by around 20 percent last month to ease a dollar shortage choking the economy.
They have long demanded a new devaluation of the official naira rate to end a spread to the black market where the dollar trades some 30 percent higher - the real benchmark for import firms as there are insufficient volumes through official channels.
The central bank devalued the retail customer rate after the National Economic Council (NEC), the country’s top adviser body and chaired by Vice President Yemi Osinbajo, called for an urgent review.
Supported by central bank sales of dollars the naira has gained ground to 450 a dollar on the parallel market since then, tightening in from 520 quoted before the move.
But President Muhammadu Buhari, who returned from seven-weeks of sick leave in Britain last Friday, has opposed any devaluation, in contrast to Osinbajo who has favored a more flexible regime in the past.
In a speech just a day after Buhari’s return central bank Governor Godwin Emefiele damped hopes of change, blaming “criminal activities” for the parallel market rate which he said was not based on fundamentals.
“The CBN cannot sit idly by and allow such faceless and criminally minded people to destroy the currency under the guise of a free float as is being canvassed by some so-called experts,” he said in a speech posted on the bank’s website.
Emefiele said at the last meeting of the Monetary Policy Committee the central bank expects the economy to turn positive this year.
Additional reporting by Vuyani Ndaba in Johannesburg; Editing by Hugh Lawson