Nigeria cuts interest rate to 6%

Nigeria, Africa’s top oil producer, cut its benchmark interest rate by 2 percentage points to boost bank lending and ease the economic slowdown.

The Monetary Policy Rate was lowered to 6 percent, Governor Lamido Sanusi said in Abuja today after presiding over his first Monetary Policy Committee meeting. The rate is the midpoint of an “interest rate corridor,” where the central bank lends to commercial banks at 8 percent and borrows at 4 percent.

Sanusi wants to lower interbank lending rates, which are near the cap of 22 percent because of a lingering liquidity squeeze after equity investors defaulted on loans and many foreigners pulled funds out of the country. The bank governor also relaxed restrictions on foreign exchange trading after the local currency stabilized and oil prices recovered, boosting the nation’s foreign currency reserves.

“This is a signal of easing,” said Leon Myburgh, Africa strategist at Citigroup Inc. in Johannesburg. “It’s very encouraging that Sanusi moved as quickly as he did” on lifting restrictions on the foreign exchange market.

The rate cut was a surprise because inflation is still above 10 percent, Myburgh said. The inflation rate fell for the third consecutive month in May, dropping to 13.2 percent from 13.3 percent the month before, the National Bureau of Statistics said on June 16.

The cash squeeze among banks led economic growth to slow to 6.3 percent in the first quarter of the year from 8.2 percent in the final quarter of 2008, easing pressure on inflation, the central bank said on June 22.

Sanusi took up his position on June 3, replacing Chukwuma Soludo, whose term as central bank governor ended last month. Soludo cut the benchmark interest rate by 1.75 percentage points on April 8 after it had been on hold since Sept. 18.

Source: Bloomberg