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% from a high of 13%, Governor Godwin Emefiele told reporters on Tuesday in Abuja, the capital.
That was a bigger reduction than forecast by seven of the 20 economists surveyed by Bloomberg, while the rest predicted the rate would stay unchanged.
Monetary policy in Nigeria is becoming harder to predict as the central bank turns to unconventional tools to protect its currency and boost economic growth.
Emefiele has imposed foreign-exchange restrictions in Nigeria, Africa’s biggest crude producer, to keep the naira stable amid a plunge in oil revenue.
“What we’ve decided to do at this meeting is that we must stimulate growth,” Emefiele told reporters after the decision. “We don’t have a choice.”
The cash reserve ratio was also reduced for a second consecutive meeting to 20% from 25%. Emefiele said that will be targeted at banks that are lending to industries creating jobs, such as agriculture, infrastructure and solid minerals.
A slowdown in inflation and a weak economy is giving the central bank reason to ease policy. The inflation rate fell for the first time in almost a year in October to 9.3%, staying above the bank’s target band of 6% to 9%. The economy expanded 2.8% in the third quarter from a year earlier, slightly higher than the 2.4% recorded in the previous month.
“It is a major decision by the central bank to drive economic growth,” Kunle Ezun, an analyst at Ecobank Transnational Inc., said by phone from the commercial capital, Lagos. “The banks will be encouraged to lend to agriculture, solid minerals and real sectors that create jobs.”
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% and boost borrowing by an additional 1.6 trillion naira ($8 billion).
Central banks from Uganda to South Africa have raised interest rates this year to ward off inflation threats stemming from weaker currencies.
The naira has remained virtually fixed at 198 to 199 per dollar since Emefiele imposed the foreign- exchange restrictions in February, while policy makers in other major oil-selling nations, including Russia, Colombia and Kazakhstan, have let their currencies fall.