Nigeria’s central bank held its benchmark interest rate at 13.5%, governor Godwin Emefiele said on Friday, adding that it sought to curb excess liquidity in the banking system to curb inflation.
The bank said 9 members out of 11 voted to increase cash reserve ratio for lenders to 27.5% from 22.5%, at its first interest rate meeting for the year, to help deal with excess liquidity on the markets.
Nigeria, Africa’s largest economy, emerged from its first recession in 25 years in 2017, however, growth remains fragile. The central bank has tried to encourage banks to lend to stimulate the economy, which has swelled liquidity.
Most analysts previously polled by Reuters had predicted the central bank would hold rates. Emefiele has said the bank would maintain its tight monetary stance in 2020.
“Maintaining the monetary policy rate at its present level is essential for sustainable support to growth before any possible adjustment,” Emefiele told reporters in Abuja.
“On the downside to holding … it will reduce the speed of economic recovery relative to loosening,” he said, adding that lowering the rate would risk increasing inflation expectations.
Inflation stood at 11.98% in December, rising for the fourth straight month, worsened by Nigeria’s border closure in August to fight smuggling. The central bank said inflation was outside its band of 6-9% and that it wanted to curtail inflationary pressure caused by excess liquidity.
He said the bank would continue to sustain the currency at current oil price and its dollar reserves of $38 billion.
Last year, the bank banned domestic funds from buying its treasury bills keeping markets awash with naira which has lowered bond yields.
Foreign investors cut their participation in Nigerian government bond auctions last year due to lower yields. However, they piled into bills supported by central bank.