Nigeria’s central bank kept its benchmark interest rate at 14 percent on Tuesday (September 20), resisting the finance minister’s call to lower borrowing costs, and its policymakers urged the government to spend more to drag Africa’s top economy out of recession.
Finance Minister Kemi Adeosun said on Monday (September 19) the central bank should lower interest rates so that the government can borrow domestically to boost the economy.
But after raising the benchmark rate by 200 basis points to 14 percent when it last met in July, the monetary policy committee decided to leave it unchanged this month.
“The monetary policy committee considered the numerous analysis and calls for rates reduction but came to the conclusion that the greatest challenges facing the economy today remains unsystematic and incomplete structural reforms which raise costs, risks and uncertainty,” said Central Bank Governor, Godwin Emefiele.
The West African nation is going through its first recession in more than 20 years, brought on by low oil prices, and inflation accelerated to an 11-year high of 17.6 percent in August.
The naira has traded at a record low of 425 to the dollar on the parallel market since last week.
As well as defying Adeosun’s call for lower rates, the committee members told the government it should “intensify” infrastructure spending to stimulate growth.
“Members underscored the imperatives of diversification of the economy away from oil into agriculture, manufacturing and services as well as more efforts towards payment of salaries and areas of public sector employees particularly in states and local governments to revamp and stimulate aggregate consumption as part of the overall fiscal policy menu kit. On the supply side efforts must be intensified at increased capital expenditure to reduce infrastructural deficit, improve the business environment and spur the badly needed growth,” Emefiele added.
President Muhammadu Buhari took office in May 2015 with a promise to diversify the economy but critics say his government has done little in terms of concrete policies to end Nigeria’s reliance on oil revenues, which have collapsed.
Economists polled by Reuters last week had predicted that the central bank would keep its benchmark interest rate at 14 percent and reiterate its focus on resuscitating growth.