CBN Governor Godwin Emefiele has given an update on when the bank is likely to lower interest rates. He disclosed this yesterday in an interview with Bloomberg.
“Once inflation gets to low double digits and high single digit happens, then it should be easy for MPC to begin to look at easing. I want to think that between the end of the first and second quarter, we should begin to see easing.”
Emefiele also revealed that the apex bank was in discussions with the National Assembly regarding screening of its nominees. The Senate is yet to screen Deputy Governor Aishah Ahmed and several Monetary Policy Committee (MPC )nominees. The absence of a quorum, led to its first meeting of the year scheduled to hold this week being postponed and the apex bank leaving interest rate and other variables unchanged.
In addition, he expressed optimism that inflation rates would continue to fall.
Why is a drop in the interest rate is key ?
A drop in the CBN’s Monetary Policy Rate (MPR) in theory should lead to a drop in the interest rates commercial banks charge their customers. A lowering of the interest rate is however dependent on a drop in inflation rates. The CBN tends to keep interest rate at par or slightly ahead of inflation rates.
Inflation rates spiked last year due to a devaluation of the Naira against the dollar, hitting nearly 18%. A fall in global crude oil prices and production volumes, led to a foreign exchange liquidity crisis in the first half of 2017.
The clouds have cleared
The macro economic environment had improved considerably as crude oil prices have rebounded, and relative peace in the Niger Delta has led to an improvement in production volumes. Foreign reserves have hit a high of nearly $60 billion, and the improvement in foreign exchange liquidity has led to the return of foreign portfolio investors.
