US Central Bank Lowers Interest Rates by 25bps

• US Central Bank Lowers Interest Rates by 25bps

The US Central Bank, popularly known as Federal Reserve, has cut interest rates for the first time since 2008 to support growth amid slowing global economy.

The apex bank lowered benchmark rate by 25 basis points to a range between 2 percent and 2.25 percent.

Eight of 10 voting officials voted for a cut, while two officials opposed the decision in favor of holding rates steady.

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures.” In doing so, “the Fed is acknowledging downside risks to growth from outside the US, which are being reflected in weaker investment and net trade, and prompting other central banks to shift to an easing stance,” says Charles Seville at Fitch Ratings.

Officials also announced they would stop normalisation of $3.8 trillion debt on Thursday, two months earlier than scheduled.

Oil price rose on expectation demand will increase given the US is the world’s largest crude oil user.

The lower interest rate should increase capital outflows from the US to emerging economies with higher interest rates and minimal risk exposure.

Nigeria’s interest rate is currently 13.5 percent, higher than the US and other emerging economies but the uncertainty surrounding policy and the incoming economic team may hurt capital importation if it is not quickly addressed.

However, with Euro-Area and the U.K enmeshed in Brexit, emerging markets with a better economic policy should experience renew capital inflows from global investors.

It should be recalled that Investors King predicted in November 2019 that “Nigeria like other oil-dependent economies may struggle to attract investors in 2019 for two reasons; uncertainty surrounding the national election and falling global oil prices due to rising oil supplies. Meaning 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.”