Monday, 20 January 2020

CBN TO MAINTAIN STATUS QUO ON RATES AS INFLATION QUICKENS

Lukman Otunuga,
Senior Research Analyst at FXTM

The latest inflation figures from Nigeria will most likely deter the Central Bank of Nigeria (CBN) from cutting interest rates anytime.

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Consumer prices in Nigeria accelerated for the fourth straight month in December last year, hitting its highest level since April 2018 at 11.98% as food prices continued to climb amid the on-going border closure.

With inflationary pressures making an unwelcome return into early 2020 and moving further away from the CBN 9% upper target band, the Naira will continue to be vulnerable. Although central bank Governor Godwin Emefiele said in November 2019 that “the impact of the border closures on inflation is temporary,” this may be questioned if inflation continues to escalate in 2020.

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Rising inflationary pressures should force the CBN to maintain status quo on interest rates next week. However, all eyes will be on the loan to deposit ratio for banks which has been set to 65%.

With monetary easing out of the question, the central bank could increase the loan to deposit rate to 70% in an effort to boost economic growth through investments in Nigeria’s real sector, particularly small and medium-sized enterprises.

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