Skip to main content

Mixed reactions trail CBN’s rate decision




The quest to tame inflation and bridge the negative real rates, attract investments and raise savings may be a mirage, if oil crisis persists and monetary-fiscal measures cannot converge in the shortest period.
This captures the positions of financial analysts and real sector operators, who projected a varying outcomes in months to come, as the nation’s benchmark interest rate, currently put at 14 per cent, begins to generate mixed feelings.
According to the real sector operators, manufacturers are in a fix, as access to foreign exchange remains limited while their woes have been compounded with the hike in interest rate.The Monetary Policy Committee of the Central Bank of Nigeria (CBN), on Tuesday, favoured the increase of the Monetary Policy Rate by 200 basis points, saying it is to curtail negative rates against inflation level and attract foreign investment.

The decision, which came as a surprise to majority of financial analysts who had projected unchanged rates, however, said the development, which has effectively reduced negative real interest rate from -4.5 per cent to -2.5 will attract foreign portfolio inflows.
But an economist, Dr. Ogho Okiti, said although the decision would add to the currency stability, it is very unlikely to curtail the inflationary pressures largely attributed to cost-shocks.“We are of the view that tightening the interest rate, which will reduce negative real interest rate will come as good news particularly for foreign portfolio inflows. But given the nature of Nigeria’s financial system, interest rates generally paid on savings by commercial banks in Nigeria are usually not dependent on the benchmark rate.
“We think that savings account holders, who have seen the real returns on their savings wiped out by rising inflation are unlikely to be beneficiaries. We also think the move could not only help to exacerbate the current difficult operating environment for firms, but would also lead to an increase in cost of funds for net borrowers and thus, dampen corporate investments,” he said.
President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs noted that the only way to industrialise and encourage diversification is when loans are less than 10 per cent, adding that the MPR at three per cent might transform the banking sector to fund SMEs and other vibrant sectors of the economy.
“The overall effect of the MPR is not good for the manufacturing sector. No one is investing in the economy, both local and international investors. Access to cheap funds is key in driving investments in the real sector. What this means is that many manufacturers may close down and this may lead to job loss”, he added.
For the Lead Director of Centre for Social Justice, Eze Onyekpere, there seems to be a debilitating fixation with monetary policy and what happens to the value of the naira, with all eyes on the Central Bank of Nigeria and its Monetary Policy Committee.
“While monetary policy is important, it will not achieve the desired results if it is not complemented by fiscal policy. The expectation and promise of the administration to reflate the economy with a stimulus package would have matched the monetary policy positions of the CBN. We may not have exactly seen Nigeria in this recession.
“There is unusual delay in implementing the budget, may be, due to paucity of resources which raises issues around budget planning and revenue forecasting for the 2016 federal budget. The full implementation of the capital components of the 2016 federal budget is imperative,” he said.

Meanwhile, a currency and Research analyst at FXTM, Lukman Otunuga, who expressed his surprise over the decision, noted that this is the second time interest rates have been raised within six months in an effort to mitigate the mounting pressures on a weakening Naira.
“With the current rates at 14 per cent, this has been the highest level ever and displays how the central bank will do all it must to guide the nation back onto the path of economic recovery.
“Sentiment still remains bearish towards Nigeria, and the recent decline in oil prices may punish the nation further. As of now, Naira vulnerability may be a theme and further declines in value could be expected as the local currency is guided by the natural forces of supply and demand.“It should be kept in mind that the nation’s problem remains depressed oil prices and the key is diversification, which could throw up some benefits in the longer term,” he added.

Comments

Post a Comment

Popular posts from this blog

Collapsed banks in Ghana recovered only $142 million out of $2 billion loans, Bank of Ghana Governor reveals.

The Governor of the Bank of Ghana, Dr Ernest Addison says out of the $2 billion (GHS10.1 billion) worth of loans taken by the receivers of some nine banks which collapsed in the country, only $142 million (GHS731 million) has been received. The Governor of the Bank of Ghana (BoG), Dr Ernest Addison The nine banks were UT Bank, Capital Bank, Sovereign, Unibank, Construction Bank, The Royal Bank, Heritage Bank, Premium Bank and Beige Bank. According to him, the receivership process has been painstakingly slow with other loan defaulters and shareholders of the defunct banks engaging in frivolous legal cases to sabotage the process. “The process has progressed slowly as out of the total loans of $2 billion (GH¢10.1 billion) taken over by the Receivers, total recoveries so far is in excess of $142 million (GH₵ 731 million) and this has been achieved through loan repayments by customers; repayment of placements; sale of vehicles; liquidation of bonds; and from...
Post a Comment
Read more

How OPEC Agreed A 1.2Mbpd Production Cut

After months of wheeling and dealing, the member nations of the Organization of Petroleum Exporting Countries (OPEC) have finally agreed an average drop in production level of 1.2 million barrels per day, effective January. The agreement exempted Nigeria and Libya, but gave Iraq its first quotas since the 1990s, Bloomberg reports. Iran seems to be the greatest winner, as OPEC agreed for the country to raise output to about 3.8 million barrels a day as the country sought special treatment as it recovers from sanctions. However, Iraq OPEC’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels despite its previous push for special consideration based on the urgency of its offensive against Islamic State. Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day. The United Arab Emirates and Kuwait will reduce output by 139,000 barrels a day and 131,000 a day while ...
Post a Comment
Read more

BOOM: Nigeria’s External Reserves Drops To Lowest In 11 Years

Nigeria’s foreign exchange reserve fell to $25,780,765,483 (25.78 billion) as of August 16, the lowest we have seen since 2005. The drop was down 2.11% from a month ago. The Nations external reserves dropped below $26 billion for the first time on the 5th of August 2016 after it closed at about $25,971,610,949. In fact, the external reserves has dropped by about $480 million dollars in August alone compared to just $100 million in the whole of July. Ironically, the current balance of $25.9 billion is worth about 80% more than what it was in Naira following the depreciation of the naira after it was floated. The CBN has in the past few days ramped up sales of dollars at the interbank in the hope that it will create liquidity in a market that is yawning gape to swallow forex after nearly almost two years of intense rationing by the CBN. The Naira weakened to its lowest ever at the interbank after it closed at about N362.5/$1 in midday trading. The Naira will eventua...
Post a Comment
Read more