CBN to Cut Interest Rate before Year-End

The Monetary Policy Committee of the Central Bank of Nigeria is expected to cut the Monetary Policy Rate, also known as the benchmark interest rate, before the end of the year. FocusEconomics, in its latest report, FocusEconomics Consensus Forecast Sub-Saharan Africa, noted that the MPC left the MPR and all other monetary policy parameters unchanged at its first meeting of the year.

“As a result, the monetary policy rate remains at a record high of 14 per cent and the asymmetric corridor at plus 200 and minus 500 basis points around the monetary policy rate.  In addition, the committee left the liquidity ratio unchanged at 30 per cent and the cash reserve ratio stable at 22.50 per cent.

“The Bank’s decision to hold the monetary policy rate unchanged at a record high reflects stubbornly high inflation in Nigeria’s economy.” The report noted that although  inflation had eased  somewhat  since  peaking  at  18.7 per cent in January  2017,  pressure from food prices along  with rising energy  prices  had  kept price pressures elevated and inflation  remained well  above the CBN’s target of six per cent to nine per cent.

FocusEconomics said, “Looking forward, the CBN struck a broadly neutral tone in its communique, mentioning that the positive trend seen in key macroeconomic indicators as a result of the tight stance should be allowed more time to fully manifest.

“However,  inflation  is  forecast  to  retreat  further  over  the  coming  months,  and assuming the Foreign Exchange market continues to  remain stable or exhibit positive  tendencies,  the Bank’s  preferences  are  likely  to  swing  more  towards a rate cut going  forward.”

The next MPC meeting is scheduled for the May 21st and 23rd. The report said, “All of FocusEconomics Consensus Forecast panelists expect the CBN to cut the monetary policy rate before the end of the year, with consensus for the rate to end 2018 at 12.11 per cent. In 2019, the panel sees the monetary policy rate ending the year at 11.75 per cent.

“The  economy  ended  2017  on  a  firmer  note,  with  growth  picking  up to a two-year high.  Activity is expected to have continued  gaining steam  in  the  first  quarter  of  2018,  supported  by  higher  Oil  prices and  greater  Foreign  Exchange  rate  supply. “Accordingly, recent economic data has pointed up, and the Purchasing Managers’ Index rose to a record high in March. However, authorities have still not passed the 2018 budget, delaying its implementation and an expected boost in Government spending.”

FocusEconomics panelists expect GDP growth to accelerate in 2018 and clock in at 2.6 per cent, the report stated. It said, “Higher Oil prices, looser fiscal policy and improved Fx allocation should support the economy’s momentum this year. That said, several challenges to growth still linger including exchange rate distortions, poor infrastructure and likely political tensions ahead of the February 2019 general elections. Next year, growth is seen increasing mildly to 3.1 per cent.”

According to FocusEconomics, growth in sub-Saharan Africa’s economy is projected to gain momentum this year, thanks to firmer commodity prices. FocusEconomics panelists see regional GDP expanding 3.5 per cent in 2018. The report said, “While the economic panorama is improving, several weak spots remain, including high debt loads and large imbalances, which could threaten the region’s outlook.  Next year, growth is seen accelerating to 3.7 per cent.”

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