Nigeria’s central bank Governor Godwin Emefiele is at risk of losing credibility over a decision to ease monetary policy, while maintaining currency restrictions that are hurting the economy.
Emefiele, 54, reduced the benchmark interest rate by 2 percentage points to 11 percent on Tuesday and lowered the cash reserve ratio to 20 percent to help support an economy struggling to cope with falling oil revenue. With importers blocked from accessing dollars, the liquidity boost may do little to increase output in manufacturing and other industries, while fueling inflation.
“It is difficult to overstate the degree to which this is a highly unorthodox move,” John Ashbourne, Africa economist at Capital Economics in London, said in a note to clients. “Nigeria faces high inflation, pressure on its currency, and it desperately needs to attract foreign capital to fund the current account deficit created by low oil prices. It is, in short, in exactly the sort of situation in which economists would generally expect – and recommend – tighter monetary policy.”
Nigeria is bucking the trend across Africa as central banks from Ghana to Zambia and South Africa raise interest rates to curb inflation threats stemming from weak currencies. Policy makers in Nigeria have moved in the opposite direction, imposing foreign-exchange controls to stabilize the naira, in contrast to other major oil-selling nations, including Russia, Colombia and Kazakhstan, that have let their currencies fall.