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Emefiele rules out interest rate cut this year over inflation

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FILE PHOTO: Nigeria’s Central Bank Governor Godwin Emefiele speaks during the monthly Monetary Policy Committee meeting in Abuja, Nigeria. REUTERS/Afolabi Sotunde/File Photo


With three more months to wrap up the year, leaving one more rate meetings and inflation rate at 11.02 per cent, there appears a near impossibility for the nation’s rate-setters to slash the current Monetary Policy Rate (MPR) at 13.5 per cent.Reason: The possibility of interest rate cut now hinges on the corresponding fall in inflation rate to nine per cent or below before considering cutting its key rate, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has hinted.

For Emefiele, the condition is not likely to happen this year, but can “only happen next next year.”“I’m not seeing that [interest rate cut] coming this year. During the course of 2020, we may be able to see that, but I can’t see that until we begin to see the numbers showing inflation is trending downward,” Emefiele said in an interview with Bloomberg TV, in London, yesterday.

The development is coming as a disappointing one for many in the real sector, who have long craved for easing regime, especially with a renewed hope for its realisation given the 48-month low inflation rate at 11.02 per cent.The apex bank chief, while acknowledging the positive moderation in inflation, though slowly from 11.08 per cent in July to 11.02 per cent in August 2019, said it was still above the target range of 6-9 per cent.

Besides, he said that considering the pressure on reserve accretion, caused by the relatively weak crude oil price, the natural response would be cautious approach and tendency to tighten. However, the policy makers, he said, was of the view that tightening in the midst of a fragile growth outlook would increase the cost of credit, and further contract investment and constrain output growth, hence the decision to retain all rates.

“But loosening would result in increased system liquidity and hence, heighten inflationary tendencies in the economy. In particular, it would drive growth in consumer credit, but without a corresponding adjustment in real sector output.“The committee was also convinced that increased liquidity and interest rate moderation would result in exchange rate pressures as money supply rises,” he said.

Speaking on current developments in the economy, he noted that data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 1.94 per cent in the second quarter of 2019, compared with 2.10 and 1.50 per cent in the preceding and corresponding quarters, respectively.

“This mediocre growth, we believe, is consistent with global trends of dampening output growth and was driven mainly by the oil sector, which grew by 5.15 per cent, while the non-oil sector grew by 1.64 per cent.“Output growth across major advanced economies remained subdued, confronted by legacy headwinds, including the subsisting trade war between the United States and China.

“There are also regional hostilities in the Middle-East, rising debt levels, growing uncertainties around Brexit and increasing political tensions between the US and Iran, including fragilities in the financial markets,” he said.According to him, these could throw up issues that may alter policy choices and create imbalances in various economies, hence require careful decisions so as not to lose already made gains.


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