Current central bank rate: 11.5%
As the Pandemic rivets the global financial scene, the Central banks are set to spend 2021 maintaining their ultra-easy monetary policies even with the global economy expected to accelerate away from last year’s coronavirus-inflicted recession.
In Bloomberg’s quarterly review of monetary policy that covers 90% of the world economy, no major western central bank is expected to hike interest rates this year.
The Nigerian central bank is under pressure to aid the recovery of an economy that’s in recession, even after 200 basis points of cuts in 2020. However, inflation at a 34-month high and a currency that had to be devalued three times in 2020 complicates the outlook for monetary policy.
Nigeria’s system of multiple exchange rates and curbs on dollar access have been key drivers of inflation and a drag on economic growth, with importers resorting to the more expensive parallel market to get hard currency. Central Bank Governor Godwin Emefiele and Finance Minister Zainab Ahmed have said they would seek a more flexible and unified naira.
Still, there is no timeline for this yet and the IMF and World Bank said in December authorities should speed up these reforms to support the economy. Inflation will remain at double digits if the central bank doesn’t reform monetary policy to focus on price stability, and easing is unlikely to give any additional boost to output, according to the IMF.
What Bloomberg Economics Says:
“Nigeria’s inflation rate continues to surge, and has been stuck above the central bank target range for the past five years. However, the Central Bank of Nigeria has overlooked the recent uptick, choosing instead to support the economy with a 200 basis point interest rate cut. We expect it to hike rates again this year, when the recovery has gathered pace and the policy focus shifts back to inflation.”–Boingotlo Gasealahwe