Central Bank retains double-digit benchmark rate to check inflation
Nigeria has kept its double-digit benchmark interest rate unchanged in two months to control rising prices and encourage foreign investments.The Central Bank of Nigeria (CBN)’s Monetary Policy Committee yesterday announced that it would be retaining Monetary Policy Rate at 14 per cent, with Governor Godwin Emefiele saying the subsisting rate “has attracted $1 billion” in foreign investment in the last two months, and that price level outlook was already moderating.
The decision to keep interest rates unchanged gives the impression that Nigeria’s interest rate regime is adjusting to the vagaries of negative growth, high inflationary trends and foreign exchange challenges.
“The CBN is caught in a situation where doing nothing actually means doing something; that’s where they are now,” Bongo Adi, who teaches Economics at the Lagos Business School told The Guardian last night. “If they reduced the rates, inflation will still go up,” considering the fact that “production is low.” He said Nigeria’s “Monetary Policy is no longer efficient”, and the only option the central bank would have is to leave it unchanged.
“He has signalled to be accommodating,” Bismarck Rewane, who runs the Lagos-based Financial Derivatives, said of the CBN governor. “He just maintained the status quo, which did not change anything; it could have been worse if they had changed the MPR.”
The economy, as Emefiele said, has continued to face elevated risks on both price and output fronts. “The Committee elected to retain the current stance of policy. Conscious of the need to allow this and other measures like the foreign exchange market reforms to work through fully, the Committee decided to retain all the monetary policy instruments at their current levels.
Despite the challenges, investors in bond market, have continued to show confidence in the economy as yield remains low on the back of high prices. Nigeria government dollar bond, with December 2018 maturity, appreciated from $101.142 to $101.170 at the end of trading yesterday.
The yield on Nigeria’s Treasury Bills has been unchanged at 15.840 percent since September 16. Nigerian government’s bond, with January 2026 maturity has not recorded activity since September 16
“It is too early for the market reaction to be noticeable, at least not until tomorrow (Wednesday) or in two days,” an investor, who asked not to be named, said on Tuesday.
Fiscal authorities, led by Finance Minister Kemi Adeosun, had canvassed the lower interest rate to enable government and private sector operators to borrow at economically viable rates for investments that would reflate the Nigerian economy and jump-start growth.
Emefiele also stated that to curb the perceived malfeasance in forex supply administration to bureaux de change, the CBN would study the report by a committee on forex abuse and might soon be directly crediting the accounts of the BDCs, instead of going through banks as intermediaries .