HOT TOPIC COMMENT ON INTEREST RATES

Godwin Emefiele, CBN Governor

Written by: Lukman Otunuga, FXTM Research Analyst

It should be no surprise that Nigeria’s central bank has left interest rates unchanged at 14% in July despite inflationary pressures cooling. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html

There is a suspicion that a combination of domestic and external factors has obstructed the central bank from easing monetary policy. Uncertainty ahead of the 2019 elections and the threat of pre-election spending triggering demand-pull inflation may prompt the CBN to remain on standby.

Externally, global trade tensions, an appreciating Dollar and prospects of higher US rates could threaten price stability. While a rate cut has the ability to stimulate economic growth in Nigeria, it may widen the divergence in monetary policy between the Fed and CBN, ultimately accelerating capital outflows.

The CBN may have a tough decision to make during the final quarter of 2018, especially when considering how the Federal Reserve is expected to raise interest rates two more times this year.

If Nigeria’s economic growth in the second and third quarter of the year is solid and oil prices remain elevated, this could make the CBN’s decision easier.

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