Why CBN May Not Cut Interest Rate This Week
Recession might have officially ended but its prodigies are still lurking in the dark.
The Central Bank of Nigeria, CBN’s Monetary Policy Committee, MPC meeting will hold between Monday and Tuesday and economic analysts are expecting to see a downward review of the interest rate.
The Monetary Policy Rate is the benchmark rate that determines what rates financial services providers charge on loans.
It has been a contentious issue. At some point this year, the national assembly even considered legislating on it.
At the moment, the MPR stands at 14%, where it had been since July 2016.
This rate is believed to be high by business operators and potential investors.
The MPC had always argued that to tame inflation which is currently at double digits, and even higher food inflation, the time is not yet rife for a downward review.Also Read: What Nigeria’s Exit From Recession Means For Nigerians
But now that the economy is recovering from its worst slump in 25 years, the central bank can turn its focus to fighting inflation again -- and strengthening the naira.
This implies that the MPC will probably hold the rate at 14% to keep inflation under control.
The marginal growth recorded by the economy in the last quarter, probably gives the MPC, room to hold off on a rate cut, according to all except one of 16 economists surveyed by Bloomberg.
“The economy’s return to growth has definitely eased pressure on the authorities,” Gaimin Nonyane, the London-based economic-research head at Ecobank International Group, said.
According to Nonyane, high inflation and the fragile nature of Nigeria’s economic recovery “will continue to undermine chances for a rate cut. As economic imbalances reduce, we might see policy easing in either November or the first quarter of next year.”
In simple terms, the CBN is not unaware that the economic may relapse into recession without a significant increase in growth in coming months.
It may simply decide to hold rate at 14% until there is substantial growth in the economy to warrant a reasonable cut in the rate.
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