Thursday, 28 November 2019

LUKMAN OTUNUGA, FXTM SENIOR RESEARCH ANALYST, COMMENTS ON CBN INTEREST RATE DECISION.


Lukman Otunuga, FXTM Senior Research Analyst
HOT TOPIC COMMENT ON CBN INTEREST RATE DECISION
As 2019 slowly comes to an end, the Central Bank of Nigeria will join the ranks of central banks who left interest rates unchanged during the second half of 2019.

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In a unanimous decision, members of the Monetary Policy Committee voted to keep interest rates at 13.5% for a fourth straight meeting in November. Given how inflation jumped to a 17-month high at 11.6% in October, the CBN is unlikely to ease monetary policy anytime soon. Although CBN Governor Emefiele stated that the jump in consumer prices are “reactionary and temporary”, inflation needs to fall back towards the central bank's target range of 6% to 9% before lower rates could be considered.

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In absence of an interest rate cut, the CBN is likely to continue exploring the minimum loan-to-deposit ratio for lenders which according to Emefiele has “lifted economic growth to almost 2.3% in the third quarter”. With Nigeria’s economic growth averaging roughly 2.16% in 2019, the nation continues to display a measure of resilience against depressed oil prices and trade tensions. Should inflationary pressures ease towards the 6%-9% target band in 2020, the CBN could surprise by cutting interest rates in an effort to boost economic growth.

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