Thursday, 28th March 2024
To guardian.ng
Search

Why policymakers may shun calls for rates’ cut again

By Chijioke Nelson
26 September 2017   |   4:20 am
With the nation’s return to growth path hugely fragile at 0.55 per cent, while food inflation index remained above 20 per cent, any attempt to cut interest rate has been described as an ‘unnecessary risk’ by experts.

US dollar.AFP PHOTO/Aamir QURESHI

With the nation’s return to growth path hugely fragile at 0.55 per cent, while food inflation index remained above 20 per cent, any attempt to cut interest rate has been described as an ‘unnecessary risk’ by experts.

Besides, the base effect, which is driving down the inflation, may be running out, making it risky to cut interest rates now.

This means that expectations and agitations by manufacturers, industrialists and small business operators for interest rate cuts would remain shunned, at least for the next two months and perhaps throughout the year.

The Chief Executive Officer, Global Analytics Consulting, Tope Fasua, told The Guardian that he is not even convinced of the enabling economic environs to cut rate throughout the year.

“We are just emerging from recession with marginal numbers. While inflation is moderating due to base effect, food index component remain high, even in the midst of harvest. The new yam export initiative has also challenged its supply locally, raising the price.”

The Managing Director of the Afrinvest Securities Limited, Ayodeji Ebo, reiterated that the economy is now running out of high base effect that has driven moderation in inflation, hence a sudden rise in inflation may be recorded in September, ruling out interest rate cuts today.

The likelihood is much for the Monetary Policy Committee (MPC) to maintain status quo on all rates today given the dire need to consolidate gains on stabilising the foreign exchange market.

For more than a year now, the Monetary Policy Rate (MPR), has been at 14 per cent.

Meanwhile, the Central Bank of Nigeria (CBN) yesterday boosted dollar liquidity in the foreign exchange (forex) market by offering $195 million to the three segments of the market.

This is coming after it steadied the country’s reserves’ profile at above $32 billion in more than one week, despite intervening to the tune of $545 million last week.

Consequently, naira had remained stable at the parallel market, hovering around convergence with the investors and exporters’ exchange rate, which range from N362 to N366 per dollar till yesterday.

Specifically, the Secondary Market Intervention Sales (SMIS) segment of the inter-bank got $100 million and the Small and Medium Enterprises (SMEs) and invisible segments received $50 million and $45 million respectively.

The intervention is significant as it came amid the ongoing the Monetary Policy Committee Meeting, which may be a further test of the market conditions that would inform the policymakers’ decisions today.

0 Comments