CBN Advert

newscorner

Business news

Inflation threatens CBN’s rate cut plan

No Comments Share:

The Central Bank of Nigeria’s Monetary Policy Committee’s long-awaited interest rate-cutting cycle risks being short-lived, if it starts at all.

The CBN Governor, Godwin Emefiele, had said last month that the MPC might reduce its benchmark interest rate from the record-high of 14 per cent before July if inflation dropped closer to single digits.

But with fuel costs surging and government spending swelling before next year’s election, the CBN governor might struggle to reach that threshold at a time when the pace of price growth is still just over 15 per cent, Bloomberg reported on Monday.

“With inflation remaining sticky, it is unlikely that the CBN would want to cut rates so soon,” London-based economic-research Head at Ecobank Transnational Incorporated, Gaimin Nonyane, said by email.

Complicating the picture is the Senate’s refusal to approve President Muhammadu Buhari’s nominees to the MPC, which means the panel lacks a quorum to hold meetings to formally set rates, further delaying any hope of cuts.

The MPC didn’t sit in January, and it’s not clear if the March 20 decision will be made.

The inflation rate rose to 15.1 per cent in January from a year earlier and has exceeded the target range of six per cent to nine per cent for 2 1/2 years.

The statistics agency is due to release data for February on March 14.

While higher crude prices have increased Nigeria’s revenue, they have also raised the cost of processed products, with the average gasoline price surging by 27 per cent in January from a year earlier.

The resultant fuel shortages prompted retailers to boost pump prices above the official cap of N145($0.40) a litre, adding to inflationary pressures.

“Unless fuel pricing is resolved, bouts of fuel shortages could keep prices sticky, feeding into other items,” the Head of Macroeconomic Research at Standard Chartered Bank Plc in London, Razia Khan, said.

Price growth might fall further before rising again in the second half because of election spending, Statistician-General, Yemi Kale, said in February.

Capital investments will continue as planned, and that will help the ruling All Progressives Congress win votes, according to the Finance Minister, Mrs. Kemi Adeosun.

The National Assembly members are debating Buhari’s proposal to increase spending plans this year by 16 per cent to N8.6tn, with a focus on increasing investment in roads, rail and power.

The International Monetary Fund forecasts the Gross Domestic Product expansion at 2.1 per cent this year, strengthening the recovery in an economy that contracted for the first time in a quarter century in 2016.

“With oil prices and production outlook appearing positive and with external reserves strengthening, the CBN has greater scope to than a year ago to reduce the policy rate,” Ecobank’s Nonyane said.

“However, this would depend on how fast consumer prices fall.”

Previous Article

Nigeria’s trade account turned positive after recession – NBS

Next Article

Fidelity Bank to train 34 youths in digital banking

You may also like

Leave a Reply

Your email address will not be published. Required fields are marked *