Nigeria’s central bank will probably keep its benchmark interest rate unchanged tomorrow as the removal of fuel subsidies threatens to keep inflation above 10 percent, a survey of economists showed.

The monetary policy rate will remain at 6 percent, according to seven of eight economists surveyed by Bloomberg. The main lending rate to commercial banks will probably be maintained at 8 percent and the borrowing rate at 2 percent.

Nigeria, Africa’s biggest oil producer, plans to end subsidies for domestic fuel consumption, which cost the government 600 billion naira ($4 billion) last year. That may spur inflation, which climbed to an annual 12.3 percent in January, giving the Central Bank of Nigeria little room to lower borrowing costs.

“Inflation is still a concern and there’s much uncertainty about the removal of subsidies,” said Ridle Markus, Africa strategist at Johannesburg-based Absa Group Ltd., a unit of Barclays Plc. “We don’t know when that’s going to happen, but when it does, it will have a significant impact on inflation.”

The central bank has left its key rate unchanged since July, while reducing the main borrowing rate to commercial banks by 2 percentage points in November.

Nigeria’s Minister of State for Finance Remi Babalola said today that the petroleum subsidies were “not sustainable in the long run” and deregulation of the oil and gas industries remains an “imperative.” Government spending on fuel subsidies last year was equal to that on capital expenditure, he said.

Yar’Adua’s Return

The government stalled implementation of the plan after President Umaru Yar’Adua left the country in November for medical treatment for a heart ailment in Saudi Arabia.

“The prospect of fuel price deregulation poses a serious threat to headline inflation, said Alan Cameron, Africa analyst at London-based Business Monitor International. “Monetary policy will only have a limited impact” on curbing price pressures if subsidies are removed.

Yar’Adua’s return to Nigeria on Feb. 24 may not speed up abolition of gasoline subsidies. His return may trigger a power struggle with Deputy President Goodluck Jonathan, who was named acting president by the legislature on Feb. 9, the global political consultancy Eurasia Group said last week.

Nigeria’s central bank may also keep interest rates unchanged as credit demand from the private sector improves. Credit growth accelerated to an annual 27 percent in December from 25 percent in the previous month, according to the central bank. That is still lower than growth of almost 100 percent in December 2007.

On Track

“Money supply growth is picking up,” said Leon Myburgh, a Johannesburg-based strategist for sub-Saharan Africa at Citigroup Inc. “Getting into single-digit inflation has eluded the central bank for some time. They’re unlikely to move on interest rates.”

Nigeria’s economy is on track to expand 6.1 percent this year, while inflation will average 11.2 percent, Babalola said.

“The monetary policy stance of the present administration reflects the tendencies to curb inflation, reduce undue liquidity injection and limit wide fluctuation on the inter-bank rate,” the minister said.


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