Rising consumer prices suggest Nigeria's central bank will raise its policy rate again next week. The bank's proven willingness to tighten monetary conditions is almost the only orthodox element in the country's policy mix.

Last week, Fitch followed in the footsteps of Moody's and S&P Global and cut Nigeria's credit rating to the lowest level of the highly speculative category. He blamed rising debt servicing costs and a shortage of foreign currency in Africa's biggest oil producer despite high crude prices.

Instead of tackling these problems head-on, the government seems determined to tinker.

Consumer price inflation reached 21.1% annually in October, slightly above September. With the bank's official interest rate at 15.5%, another hike next week seems inevitable.

The same determination should be applied to addressing Nigeria's persistent budget deficit and chaotic foreign exchange regime.

Oil production in Nigeria usually follows commodity prices. These have soared in the past two years, but production has plummeted to a four-decade low of less than a million barrels a day, well below OPEC's quota of 1.83 million barrels a day.

Production is affected by sabotage and theft. The Nigerian National Petroleum Corporation declared this month that it had discovered 295 illegal connections to its pipelines and claimed to have "dismantled" thousands of illegal refineries. Subsidies also eat into government revenue.

Nigeria's exchange rate is under pressure. This month, the black market rate has soared to 900 naira per dollar, more than double the official spot rate.

However, some of the bad news is reflected in equities. The Nigerian stock market has far outperformed the MSCI Frontier Markets Index this year, and is considerably cheaper at 6 times forward earnings.

Investors should expect the new government, to be elected in February, to address both fuel subsidies and the currency. Oxford Economics suggested buying public debt this month in light of this expectation. The less adventurous should wait and see what happens.

Source: Financial Times