MPC to hold rates at current levels

As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meets today and tomorrow for the last time this year, there are strong indications that body will hold the rates at their current levels.

Analysts believe that the committee will most certainly hold all rates at the current levels to build market confidence. The expectations of reduction in interest rate at the end of the MPC meeting may not materialise going by projections from economic analysts.

According to the Managing Director, Afrinvest West Africa Plc, Mr. Ike Chioke, the committee will maintain status quo as monetary policy has already reached its limit in stimulating investor confidence whilst focus has shifted to administrative measures preventing a fully functional forex market.

“A higher rate environment would neither spur private capital inflow nor would a lower rate policy incentivize banks to increase their risk appetite in the credit market. The investment dilemma to foreign investors remains the current attractive yields in the market and the overhanging currency risks which might serve as a bottleneck in the repatriation of funds,” he said.

“We believe that the forex market needs to be ‘truly liberalised’ not only in its operations but also in the demand and supply dynamics by rolling back capital control polices and reinstating transparent two-way quoting system for forex”.

Chioke explained that since the last MPC meeting in September, the global risk landscape and policy outlook had changed dramatically, underlined by the emergence of Donald Trump as the President-elect of the United States and the resultant shockwave in the global bonds market, risk-on appetite in the US and underperformance of emerging markets assets.

“Global fund managers have interpreted Trump’s victory to imply a domestic pro-growth and expansionary fiscal policy agenda in the US and high probability of lower trade relations with emerging markets,” he said.

The CBN Governor, Godwin Emefiele, said at a function in Lagos at the weekend that “as an individual,” reducing interest rates was one of his cardinal missions, but that it is important to discuss the “issue based on facts, rather than politics and/or emotions.”

He said that calls by notable persons and groups to reduce the country’s high lending rates, may not be possible now, especially with the level of inflation already synonymous with stagflation — a twin issue of rising prices and unemployment rate.

“For those who say we need a rate cut to spur growth, we need to remind them that high inflation is highly inimical to economic growth. With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time,” he said.