Interest rate cut will impact financial market significantly, say experts

• MPC cuts to 13.5%

CBN Governor Godwin Emefile

By FELIX OLOYEDE

The reduction of interest rate also known as Monetary Policy Rate (MPR) for the first time since November 2015 will have positive impact on the Nigerian financial market, experts have argued.

The Monetary Policy of the Central Bank of Nigeria (CBN) adjusted the interest rate to 13.5 per cent from 14 per cent on Tuesday for the first time since July 2016.

Nigerian inflation rate has been decelerating, dropping to 11.37 per cent in February, having reached over 18 per cent in 2017.

Moses Ojo, Head, Research and Business Development, PanAfrican Capital noted that the 50-basis points reduction in MPR is not significant on the surface, considering that rates have been crashing in the fixed income market before the MPC meeting.

“The impact of the rate cut is expected to lead to lower yields in the market. Also, considering the fact that headline inflation has moderated recently. The effects of the cut in policy rate is expected to be significant in the market in the days ahead, even though the cut wasn’t significant,” he claimed.

The CBN Governor, Godwin Emefiele told the press at the end of the MPC meeting on Tuesday that the committed decided to shift focus from inflation fight and pay attention to economic growth since there was relative stability in key macroeconomic variables.

He added that “This rate cut is meant to signal that there is a need for us to move course a little further. To do so we need to begin to look at money supply, liquidity to push growth.”

“Well, from the CBN Governor’s speech, we heard him mention things like Debt service and deficits. He also sounded a lot more dovish and it is obvious the focus has shifted towards economic growth.

“I believe the main aim now is to spur growth and leave rates high enough to still wet investor’s appetite. We should see rates crash further and effectively reduce cost of borrowing and by extension lead to improved production,” Abayomi Ajayi, Research analyst with Investment One Financial Services told Business Hallmark.

Ayodele Akinwunmi, Head, Research, FSDH Merchant Bank stated that interest rate cut being the first in a long time, it is significant, but because few lending is taking place there, it is of little significant.

The Nigerian economy grew 1.9 per cent in 2018, but the government has projected 3 per cent growth for this year, while IMF is expecting it to grow by 2.1 per cent.