Market News

By Nduka Orjinmo

(Bloomberg) -- Nigerian central bankers, emboldened by stronger-than-expected third quarter economic growth, are set to extend their more than two-year tightening cycle to temper inflation.

Most economists surveyed by Bloomberg anticipate Governor Olayemi Cardoso will announce another 50 basis point increase in the benchmark interest rate to 27.75%, when he delivers the monetary policy committee’s decision after 2 p.m. at a press briefing in Abuja, the capital. 

That would push the central bank’s cumulative rate-hike campaign this year to 9 percentage points. 

Inflation of 33.9%, plus risks to food prices from floods and fuel price increases, will likely push the MPC to hike again while undermining “prospects for any rates cut in the near term,” said Gaimin Nonyane, director for Middle East and Africa Sovereigns at Fitch Ratings Inc. 

Cardoso and his colleagues are also likely to be concerned by expected increase in demand for dollars in December, that will undermine the already-weak naira that’s depreciated more than 4% since the central bank raised rates by a half point on Sept. 24.

“We are going into December. The naira typically weakens because of the huge haul of imports that we get just around the festive period,” said Victor Aluyi, senior vice-president of Sankore Investments in Lagos. He expects policymakers to hike rates to achieve price stability, “particularly with a focus on the FX situation.” 

Another reason that the MPC will likely raise rates at its last meeting of the year is to narrow the gap between inflation and the policy rate, that’s at about 660 basis points. Cardoso will want to assert his resolution to achieve positive real rates, and also not to “constrain much needed inflows,” Fitch’s Nonyane said. 

Cardoso has previously said that the central bank wants a positive inflation-adjusted interest rate to attract investment and support the naira

The MPC may also feel less constrained to raise rates after the economy accelerated more than expected in the third quarter. It grew an annual 3.46% - its fastest pace in three quarters, boosted by the services sector. 

--With assistance from Simbarashe Gumbo and Mpho Hlakudi.