[Bloomberg] Nigeria’s central bank raised its benchmark interest rate to the highest level in 2 1/2 years to help curb inflation as higher wages and increased liquidity in the banking industry threaten to drive up prices. The monetary policy rate was increased by half a percentage point to 9.25 percent, Governor Lamido Sanusi told reporters in the capital, Abuja, yesterday. The decision was in line with the median

 estimate of 11 economists polled by Bloomberg. The borrowing and lending rates rose by the same margin to 7.25 percent and 11.25 percent respectively.

The government of Nigeria, Africa’s biggest oil producer, more than doubled the monthly minimum wage to 18,000 naira ($115) last month, adding to price pressures. While inflation slowed to 9.3 percent in August from 9.4 percent the previous month, the core inflation rate, which excludes food, is higher at 10.9 percent. The central bank targets inflation at less than 10 percent.

“Concerns remain about maintaining the present inflation trend,” Sanusi said. A higher minimum wage, increased liquidity through the recapitalization of commercial banks by the Asset Management Corp. of Nigeria and expansionary fiscal policy may add to inflation, he said.

Nigeria’s naira has weakened as much as 3 percent against the dollar this year and was at 156.75 by 6 p.m. yesterday in Lagos, its weakest level since June 23, according to data compiled by Bloomberg. The central bank sells dollars to keep it within a range of between 3 percent above or below 150 per dollar to help curb inflation.

Reserves Rise

“Inflation may be on a temporary downtrend, but the central bank is not taking any chances,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mailed statement. Foreign exchange “stability is likely to be the key determinant of any future rate moves,” she said.

The country’s foreign reserves rose to $34.85 billion by Sept. 15 compared with $33.73 billion on July 21, Sanusi said.

Nigeria’s economy, the second-biggest in sub-Saharan Africa after South Africa, is forecast to expand 7.85 percent this year after growing 7.72 percent in the second quarter, he said.

“Given the difficult and uncertain international environment, it is important to ensure that the current trend in growth is sustained and price stability is maintained, Sanusi said.

 

Bloomberg