The Central Bank of Nigeria (CBN) left its benchmark interest rate on hold at 12 percent on Tuesday as expected but took measures to tighten liquidity to support the weakening local naira currency.
The CBN’s Monetary Policy Committee (MPC) chose to raise banks’ cash reserve requirement to 12 percent from 8 percent and reduce net open foreign exchange positions to one percent from three percent to support the naira.
Eleven analysts polled by Reuters last week had expected the MPC to keep its benchmark rate unchanged for a fifth meeting running.
The naira has been hit by a fall in the price of oil, the country’s main export, and global risk aversion and has weakened by almost 3 percent against the dollar since April. The naira closed at N160.7 against the U.S. dollar on Tuesday, outside the CBN’s N150-N160 target trading band.
Currency weakness is aggravating inflation as the country imports 80 percent of what it consumes.
Consumer inflation rose to 12.9 percent year-on-year in June, up from 12.7 percent in May. The CBN expects it to peak around 14 percent later this year.
The CBN Governor Lamido Sanusi said on Tuesday there were serious risks to growth in Nigeria due to weaker global economic growth, lower oil output, a worsening security environment and high government spending.
Mr Sanusi also said Nigeria was unprepared for a potential oil price slump because government was spending the country’s savings, which are stored in the excess crude account.
Nigeria’s economy grew 6.17 percent in the first quarter this year, down from 7.68 percent in the fourth quarter last year. The economy is projected to grow at 6.5 percent this year, down from 7.4 percent in 2011.
The CBN has kept rates on hold since November, after six successive hikes last year, including a 275 basis point rise in October to 12 percent, to ward off speculation on the naira. The naira fell 4.5 percent against the dollar last year.