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Nigeria will probably hold its benchmark interest rate at a record-high 14 percent for the ninth straight time since July 2016, when members of the Monetary Policy Committee (MPC) meet this Tuesday and Wednesday, with an easing cycle seen happening in the first quarter of 2018 at the earliest.
Five analysts surveyed by BusinessDay expect the rate unchanged in order to stimulate Nigeria’s fragile economic growth.
The analysts expect the rate unchanged despite the trend in inflation and fragile economic growth. Although, one other analyst however predicted a cut by 25 percent basis points, as a way of giving growth a catalyst.
The MPC signaled at the last meeting held in November 2017, that it would hold its guns till the first quarter of this year before reviewing the rate, as it seeks clarity on how indicators from Gross Domestic Product (GDP), budget implementation, the foreign exchange rate and inflation, will evolve.
Meanwhile, the rate at which the prices of goods and services increase in Nigeria (inflation) slowed to 14.33 percent in February from 15.13 percent the previous month, making it the thirteenth straight month of decline, but still remains well above the 6-9 percent preferred band, while the country managed to exit recession in the second quarter of 2017, according to data provided by the National Bureau of Statistics (NBS).
The inability of the MPC to form a quorum was the barrier to holding the first meeting of the year, scheduled to hold in January 22 and 23, 2018. The committee also postponed its March 19th and 20th meeting because it did not have the quorum required to convene and set rates, as stipulated in the CBN Act 2007.
However, the MPC meeting is confirmed by the CBN to hold on April 3-4 of 2018, following the confirmation of two CBN Deputy Governors and three MPC members, bringing to eight, the strength of the MPC.
“The MPC should leave the benchmark rate unchanged, considering the policy rate remains negative in real term and the economy on the other hand is still at a fragile stage,” Wale Okunrinboye, a Fixed Income and Currency Research analyst at Ecobank told BusinessDay by phone.
Meanwhile, inflation at 14.33 percent is still higher than the benchmark rate of 14 percent. This means the real interest rate is still in a negative trajectory of -0.33 percentage points.
“Inflation still outgrows the MPR, despite its moderation rate, positive movement in the FX, stable exchange rate, and rebound in economic activities in the positive path. A further moderation in inflation rate should be recorded before considering a rate cut,” Tajudeen Ibrahim, Head of Research at Chapel Hill Denham Securities Limited said.
“The committee should implement an easing and accommodating policy that is required to stimulate the fragile growth of Africa’s largest economy, a policy that will bring more money to the economy,” Ayo Akinwumi Head of Research FSDH Merchant Bank said.
“They should formalize what is already being seen in the economy, as such should reduce the rate by 25 basis points, as this will serve as a catalyst to economic growth and will help lift the economy from its fragile state,” Bismarck Rewane, MD of Financial Derivatives Company told BusinessDay by phone.
“Inflation is still very high; as such the committee should be cautious about reducing the rate. Policy that will make more funds available in the country should be encouraged, and as such the economy should be linked with long term funding institutions like the pension funds,” Emeka Osuji, a lecturer at school of management/social sciences at Pan Atlantic University said.
Slower inflation and more stable exchange rates have built a case for looser monetary policy in Kenya, Ghana and South Africa.
In a surprise move, the MPC of the Central Bank of Kenya opted to cut the Bank Rate by 50 basis points, to 9.50percent from 10.00percent at its meeting held on 19 March.
The decision came against a backdrop of slowing inflation, sustained macroeconomic stability and an improving business environment, which bodes well for the country’s economic growth prospects. It also marked the first rate cut in 18 months.
The Bank of Ghana also lowered its prime lending rate by 200 bps to 18 percent at its March 2018 meeting, compared to market expectations of a 100 bps cut. It is the first cut so far this year, bringing borrowing cost to the lowest level since 2014. Policymakers said the medium-term inflation target of 8 ±2 percent is on course after a disinflation process in the first two months of the year.
The Monetary MPC of the South African Reserve Bank (SARB) also followed in the same trend as Kenya and Ghana, it cut its benchmark repo rate steady by 25 bps to 6.5 percent on March 28th 2018, in line with market expectations, mentioning lower inflation expectations. The Committee added that the upside inflationary pressure from the increase in the VAT rate will be offset by the stronger exchange rate.
On when it is suitable for a rate cut in Africa’s largest economy, analysts projected May or July and one suggested the committee should consider cutting rates in the next one or two future meetings.
Okunrinboye of Ecobank forecasts that the rate will be reduced by May or July and it will be cut to 12 percent.
The MPC meeting, where critical decisions on the economy are taken, meets once every two months, bringing to six the number of times the Committee convenes in a year. The 12-member Committee comprises a chairman, who is the governor of CBN and other members drawn from the apex bank and seven members from the private sector.
Endurance Okafor
