MPC Sees Holding Interest Rate at 13.5%

• MPC Sees Holding Interest Rate at 13.5%

Analysts are predicting that the Central Bank of Nigeria will leave the interest rate unchanged at 13.5 percent during the two days Monetary Policy Committee (MPC) starting today in Abuja.

Nigeria’s inflation rate moderated from 11.44 percent to 11.22 percent in June, suggesting that prices of goods are starting to reflect recent stability in the foreign exchange market due to the CBN’s intermittent forex intervention at various segments of the market.

Still, foreign direct investment remained low despite the CBN refuting Reuters’ declaration of 40 percent drop in FDI in 2018, the overall performance was below Ghana and other African countries perceived more economically stable than Nigeria.

Therefore, with the U.S Federal Reserve expected to announce a possible rate cut in three days time, Nigerian market experts are projecting that the CBN Monetary Policy Committee will leave interest rates unchanged at the current level to attract global investors that are likely to abandon U.S. assets for emerging economies with reasonable growth.

While it is not certain foreign investors will eventually jump on Nigerian instruments given lack of economic team months after the general elections, it is the only available option to prop up FDI and sustain the foreign reserves in a period when global growth is projected to slow amid trade wars and unrest in the Middle East, Venezuela, Libya etc.

Analysts at Financial Derivatives Company (FDC) said: “The MPC will maintain the current status quo of 13.5 percent benchmark rate and a cash reserve ratio of 22.5 percent.”

“The decision would be premised on rising inflation rate which is above the CBN’s single digit, lower crude oil prices, slow economic growth and the increase in import duty charge,” said the analysts at the Bismarck Rewane-led FDC.

However, analysts at FSDH sees an additional 50 basis points reduction. They said given CBN new position to stimulate economic growth and compel lenders to increase credit facility to the private sector, it is possible the CBN ‘oversee’ MPC will lower interest rates to sustain its ongoing policy, LDR of 60 percent, SDF to N2 billion and caping lenders bills purchase.

“We think the CBN will reduce rates by 50 basis points, given that inflation has slowed further, and exchange rate has remained stable,” said analysts at investment and merchant banking firm, FSDH.

Experts at Investors King said global happenings will prevent MPC from cutting rates twice in the last one year when economic metrics remain the same and in some cases worst.

They predicted that MPC will maintain current interest rates to sustain capital importation, especially when developed economies are projected to lower rates in coming days.

The experts, who had predicted in November 2018 that Nigeria will have to maintain a reasonably high monetary policy rate to remain attractive to investors in 2019, said their position has not changed.

“To sustain capital importation despite falling oil prices and almost stagnant oil output, the central bank has to maintain high monetary policy rate to remain attractive to investors and curb inflation rate while simultaneously sustaining forex intervention.”

The analysts noted that a healthy FDI will sustain the nation’s foreign reserves, curb inflation rate – cost-pull inflation and support the Naira.