Economy gets first policy direction for 2019 today

In the absence of an approved budget for 2019, the Central Bank of Nigeria (CBN), will today, lead the way with a policy decision that revolves around interest rate and sustenance of interventions for frailties of fiscal authorities.

The Monetary Policy Committee of the apex bank would come up with a decision in its first meeting of the year, reconvened since yesterday, with focus on the assessment of economic implications of the heated political environment, external shocks and sustained fragile recoveries in the past two months.

Other issues on the table are the constant decline in credit creation by banks, renewed inflation, long-standing high interest rate, volatility of crude oil prices and its implications on meeting government’s revenue projections as well as sustenance of foreign investment inflows, reserve accretion and exchange rate.

The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, in a statement to The Guardian, pointed out that the CBN, despite keeping rates at the current levels since July 2016, still have reasons to leave them unchanged for now.

Explaining the rationale for a further hold on rates, he noted that while the U.S. Federal Reserve may raise three times in 2019, the Bank of England and the European Central Bank may reduce money in circulation, leading to increase in global interest rates.

Consequently, interest and exchange rates in emerging and developing countries would be under pressure because of capital flight.

The Group Managing Director of Afrinvest, Ike Chioke, said the monetary policy guidance offered by the apex bank so far was restrictive, hence no expectations of rate cut in the early part of this year.

He observed that while crude oil production levels are expected to increase, latent security risks in the Niger Delta region amid volatile crude prices could put pressure on government finances.

According to him, any pressure on crude oil receipts would most definitely filter into the foreign exchange liquidity risk, which would exert immense threat on the economy.

Another financial analyst, Martins Uzor, stated that despite the fact that the economy is showing signs of recovery, there was need for coordination of fiscal and monetary policies to achieve strong growth and reduce potential negative impacts.

He said any form of rate cuts now might be counter-productive.