Connect with us

    Hi, what are you looking for?

    Opinion

    Hot Topic Comment on Interest Rates

    By Lukman Otunuga, Senior Research Analyst at FXTM

    It is no surprise that the Central Bank of Nigeria (CBN) has left interest rates unchanged today at 11.5%.

    While central banks across the globe have embraced looser monetary policy to defend their respective economies against Covid-19, the CBN simply does not have enough breathing room. Given how inflation remains well above the 6-9% target, a rate cut could fuel inflationary pressures – ultimately impacting economic growth.

    But this is where things get tricky. Activity in Africa’s largest economy has displayed signs of improvement thanks to the easing lockdown restrictions and rising oil prices.

    However, the second wave of infections and ongoing uncertainty over the vaccine rollout threatens to sabotage any meaningful recovery. With the coronavirus pandemic already derailing the CBN from its price stability mandate, the bank is likely to adopt a wait-and-see approach for the foreseeable future.

    Should the growth outlook deteriorate due to Covid-19, the CBN may end up enforcing unconventional tools in an attempt to revive growth. These include tweaking the loan to deposit ratio, liquidity ratio, and cash reserve ratio.

    The monetary policy committee once again expressed concern about rising inflation. Indeed, inflation is expected to remain elevated due to supply disruptions created by Covid-19, tightening border restrictions, the increase in VAT, and removal of a fuel subsidy. With the trajectory on inflation pointing north, interest rates are unlikely to move below 11.5% anytime soon.

    Spread the love
    Click to comment

    Leave a Reply

    Your email address will not be published.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

    ad

    You May Also Like

    Oil and Gas

    Leading oil and gas experts in Nigeria have called for the full adoption of digital technologies to overcome the complex challenges facing the country’s...

    News

    Russia’s Finance Ministry announced on Wednesday, September 24, that it plans to raise the country’s value-added tax (VAT) to help finance the ongoing war...

    Tech

    Lagos State has reaffirmed its position as Africa’s leading technology and innovation hub following the successful hosting of the GITEX Nigeria Tech Expo, Future...

    News

    The United States has reversed its visa restrictions on Ghana after the West African country agreed to accept west Africans deported by the United...