₦airaland Forum

The Central Bank of Nigeria has hinted about plans to increase the interest rate as it hopes to tighten the monetary policy in response to higher inflation ahead of the general elections in February.

A Bloomberg report on Tuesday quoted a CBN Deputy Governor, Dr Joseph Nnanna, as giving the indication on Monday on the sidelines of a conference in the resort city of Sharm El-Sheikh in Egypt.


Already, he said virtually all members of the Monetary Policy Committee had supported the idea, that “the Monetary Policy Rate should increase if inflationary pressures build up.”

But finance and economic experts have expressed divergent views on the issue with those opposed to the idea saying increasing the MPR would make it difficult for businesses to raise funds.

According to the report, the MPC has held its key rate at a record 14 per cent since 2016 in a bid to prop up the naira and tame inflation after it spiked to double digits in the same year. While price growth has since slowed to below the monetary policy rate, the panel has shifted from some members voting for rate cuts in January to three of 10 members favouring higher rates at the July meeting.

The CBN Governor, Godwin Emefiele, flagged the delayed passage of the 2018 budget of N9.12tn ($25bn) and pre-election spending as possible price risks in the second half of the year. Nigerians will go to the polls in February next year for a vote in which President Muhammadu Buhari will seek another term.

Nnanna said, “These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation. There’s a scope to raise rates before the elections in February.”

He reportedly voted for a 50 basis-point increase in May. While the individual member statements from the July MPC meeting have not been released, one person voted for 25 basis-point hike and two wanted to raise the rate by 50 basis points.

“The central bank is still in the mood for tightening. How fast are we going to tighten is what members haven’t agreed upon,” he said.

Nnanna said while policy tightening by the United States Federal Reserve was a concern, investors still saw Nigeria as an attractive market, thanks to the stable naira and the yield curve on fixed-income instruments higher than in the US or Europe.


“I am not worried about reversal of capital flows. If any investor wants to exit the market, we shall meet them at the door and write a cheque and give them their money,” he said

Reacting to the issue, in a telephone interview with one of our correspondents, a former Director General, Abuja Chamber of Commerce and Industry, Dr Chijioke Ekechukwu, said while tightening would help curtail the threat of inflation, the burden that would arise as a result of high cost of funds would be transferred to consumers.

He said, “An increase in the interest rate is to achieve a specific goal. It’s either to reduce inflation or to protect the foreign exchange market by reducing importation. Once interest rate increases, it wants to curb importation and protect the local currency because people will not have enough money from banks at cheaper rate.

“When businessmen and women have cheaper funds from banks, there will be so much request for foreign currency. On the other hand, Nigerians would have expected that they would reduce interest rate because when interest rates are increased, the impact will still be on the consumers. It will affect the inflating rate as a matter of fact but the businesses will pass the ultimate costs on consumers and they are the ones that will suffer everything when the rates are increased.”

Also speaking, a professor of finance at the Nasarawa State University, Uche Uwaleke, said the threat of election spending, which might impact negatively on inflation, could force the apex bank to increase the interest rate.

He said, “Single-digit inflation would justify easing monetary policy. This is not yet the case. The impact of largely unproductive expected election spending on inflation has to be factored in. Reducing the MPR may not necessarily translate to lower lending rates by the banks to the real sectors due to poor transmission mechanism from structural rigidities.

“On the other hand, increasing the policy rate will increase cost of funds for businesses, lower productivity and most likely increase non-performing loans for banks since they are likely to re-price their assets.”

The President/Chairman of Council, Chartered Institute of Bankers of Nigeria, Dr Uche Olowu, said the MPC would be taking a right step by increasing the interest rates.

Olowu, who described it as a wise decision, said an increase in interest rate was necessary to compensate for loss of value.

He said the next necessary thing to do when inflation rates start rising would be to raise the interest rates so that money would not lose value.

According to him, there is currently too much money in the economy because of electioneering activities, which will bring about liquidity and eventually raise inflation.

Olowu said, “So, to counter that, interest rates have to be raised. However, the rates should be increased after the elections, and not before. If they increase now, this current government would be of the view that they want them to lose the election, or that they are working for opposition parties. After the election, there is nothing to lose.”

http://www.akelicious.net/2018/08/cbn-may-increase-interest-rate-soon.html

FTC

MONEY FOLLOW ME OOO

You don't need to have studied economics to understand this. I have anticipated it all along. In simple terms, the CBN is about to open the vaults for APC's election spending and they want to cushion the effect of the resultant demand-pull inflation through higher interest rates. On the other hand, with the bastardisation of our fairly stable polity in recent times by APC, it is just normal that investors who are highly risk averse will tend to pull their capital out of the economy since no one can be sure of what will remain of Nigeria before and after the presidential election. The only way to deal with this is to entice investors with higher interest rates in return for the risk. In all, businesses will have to face higher cost of capital. If you have some extra cash, this may be a good time to go for T-bills because the rates will soon grow and banks will only start honouring orders from their well-known customers.
By the way, I feel this coming xmas will be the best since the administration of Buhari because that is the only time they be in touch with the masses.

No one should comment yet until I come back to read this

2nd to comment, men I am so much happy about this, let the celebration start now.

At least the governor is coming back to his original sense before his tenure ends. Cus he has done much harm than good with his wicked policy.

Tbills and Money market investors. tighten your seatbelt. We bout to hit a new high this year

chukzyfcbb:
Tbills and Money market investors. tighten your seatbelt. We bout to hit a new high this year

bad guy we ready for them #15 on tb

just look at the source of the news... useless bloggers

Buhari will be blamed...

The High Return On Investment business most Nigerians don't know about. Read Full details via the link below:

http:///bptraining

In sane countries pple get loans of 2-5% . For 9ja her plr is 17% which only rich enjoy. Normal person dem go giv 22-27%. This country is truly a zoo. 27% interest rate, diesel and petrol costs, taxes from lg state and FG. How would businessess or companies break even. Smh

Will that reduce the suffering in the land?

NIGERIA WILL SOON EXPLODE. DEY R INCREASING INTEREST RATE ON INNOCENT PPLE COS OF DER TERRIBLE POLICIES. NIGERIA WILL SOON EXPLODE I SAY AGAIN, N IT WILL BE VERY BLOODY

I don't really support that idea.

So many factors contributing to present inflation such as US-China trade war,uncertainty in coming elections and others are sufficient to send jitters into the hearts of foreign and local investors.

It is a mystery to me how this Emefiele still has a job.... a man bankrupt of ideas and as ordinary as they come... thank you GEJ!

"May" "soon"



Nah wah

Hmmm Naija

ednut1:
In sane countries pple get loans of 2-5% . For 9ja her plr is 17% which only rich enjoy. Normal person dem go giv 22-27%. This country is truly a zoo. 27% interest rate, diesel and petrol costs, taxes from lg state and FG. How would businessess or companies break even. Smh

Interest rate in Norway is 1.5% C you Imagine ease of life?

ahiboilandgas:
bad guy we ready for them #15 on tb

Which high?

Your eye go clear.

Debt externalization is the new trend

chloride6:
Which high?

Your eye go clear.

Debt externalization is the new trend

which ?the reserved has dropped to 47bn ,foreign portfolios investors moving out,foreign loans has a risk too paying back with nation dollar earnering hence hindering the cbn from maximum ability to protect naira ...leading to devalued naira and more suffering...hence they have to keep rate at 15 to attract fpi to save the reserve and stabilise the naira

chloride6:
Which high?

Your eye go clear.

Debt externalization is the new trend

And how does it affect the possibility of T.B rates going upwards soon..?
Kindly,elucidate your points extensively in narrative-intense..

Serious countries reduce interest rates when they need to drive economic growth and increase investments.

The US hardly goes above 7%, but Nigeria is currently above 15% and has never gone below 7% .

China even recently did a negative 3% interest rate. this means if you borrow hundred thousand for business, you pay back 97000.



Never in Nigeria. Instead they increase interest rates during bad economic periods. I don't know who cursed this country. It's like everybody is joining hands to ruin it the way they can.

ikennaf1:
Serious countries reduce interest rates when they need to drive economic growth and increase investments.

China even recently did a negative 3% interest rate. this means if you borrow hundred thousand for business, you pay back 97000.

Never in Nigeria. Instead they increase interest rates during bad economic periods. I don't know who cursed this country. It's like everybody is joining hands to ruin it the way they can.

the economic fundamentals of China and Nigeria differs look ever where China goods where is Nigerian goods ?

Gavrelino123:
And how does it affect the possibility of T.B rates going upwards soon..?
Kindly,elucidate your points extensively in narrative-intense..

The yields on any instruments are to a large extent dependent on supply and demand.

The FG has resolved to resort more to foreign loans in order to lower its debt cost. The FG could easily sell Eurobonds at max of 7 - 8% and be oversubscribed. You must agree that it cheaper than 15 - 17%.

The FG is also trying to avoid crowding out the private sector. Interest expense took a toll on the books of many companies last year.

ahiboilandgas:
which ?the reserved has dropped to 47bn ,foreign portfolios investors moving out,foreign loans has a risk too paying back with nation dollar earnering hence hindering the cbn from maximum ability to protect naira ...leading to devalued naira and more suffering...hence they have to keep rate at 15 to attract fpi to save the reserve and stabilise the naira

Even when the reserves were $27 billion, Nigeria's Eurobond was comfortably over subscribed. Investor's get out and get in all the time

Gavrelino123:
And how does it affect the possibility of T.B rates going upwards soon..?
Kindly,elucidate your points extensively in narrative-intense..

read my previous comment ....the white guys are moving out of the fixed income markets cos of poor rates and exchange market risk and rise in Americans rate the 11 percent is not attractive other African nations like ghana and Kenya have better rate hence they are moving there

ahiboilandgas:
the economic fundamentals of China and Nigeria differs look ever where China goods where is Nigerian goods ?

During America's biggest recession in the 1930s, did they increase or decrease interest rates? And economics of the 1930s is different from that of now. please stop giving excuse for failure.