Date Published: 05/10/10

Nigeria May Keep Key Interest Rate at 6%, Focus on Toxic Debt

 (Bloomberg) -- Nigeria’s central bank will probably leave its benchmark interest rate at 6 percent tomorrow as it focuses on buying toxic debt that almost crippled the banking industry last year, analysts said.
The Monetary Policy Committee will announce its decision in the afternoon. The monetary policy rate was left at 6 percent on April 16, while the key lending rate remained at 8 percent and the borrowing rate stayed at 1 percent.
Nigeria’s Senate approved a bill on May 5 to buy bad debts from commercial banks and inject funds into the industry through share purchases as the central bank attempts to boost lending and fuel faster economic growth. The Asset Management Corp., which will buy the debt, will start with a minimum 20 billion naira ($133 million).
The focus of the MPC meeting may be on a “proper structure for the asset management company” to start operation immediately the bill is signed, said Victor Ndukauba, an analyst at Lagos-based Afrinvest West Africa Ltd., a fund manager.
The Senate now has to harmonize its version of the bill with that of the House of Representatives before sending it to the president to sign into law.
The central bank bailed out some banks with 620 billion naira ($4.1 billion) last year because of losses on margin loans, which speculators use to buy shares. Bank of America Corp. estimated that at least 1 trillion naira ($6.7 billion) of margin loans were extended. Nigeria’s All Share Index plunged 34 percent in 2009 and 46 percent in 2008.
Slowing Growth
The extent of bad debts has damped lending and growth in the economy, which will probably expand 7 percent this year, little changed from 2009, central bank Governor Lamido Sanusi said last week. Banks are unlikely to pick up lending before their balance sheets are repaired, he said.
Credit to the private sector fell for the third consecutive month in March, dropping 0.2 percent from the month before, according to data on the central bank’s website.
The monetary authorities may also need to get direction from the country’s new president before undertaking any policy shift, said Rose Umoren, president of Global Money Ltd., an Abuja-based business research company.
The meeting comes after Goodluck Jonathan was sworn in as president on May 6, replacing President Umaru Yar’Adua who died on May 5 after a prolonged illness.
The central bank has to “take a bearing from the political leadership,” Umoren said by phone on May 6. President Jonathan “has to give a clear signal of the kind of policy he wants to pursue,” otherwise the bank will be “jumping the gun.”
Inflation in the West African nation, which vies with Angola to be Africa’s biggest oil producer, fell to an annual 11.8 percent in March from 12.3 percent the month before, the statistics office said on April 16.