Why CBN won’t cut interest rate despite inflation slowing down to 20 month low

…Nigerian inflation rate slows to 15.37%, lowest since April 2016

FELIX OLOYEDE

Prof. Yemi Kale, DG, National Bureau of Statistics

Those agitating for interest rate cut in first quarter may have to wait longer than expected, despite inflation rate slowing down for the 11^th consecutive time to its lowest since April 2016, analysts have posited.

Consumer Price Index (CPI) data released on Tuesday by the National Bureau of Statistics (NBS) showed that inflation rate fell to 15.37 per cent year-on-year  in December, 0.53 per cent lower than 15. 9 per cent recorded in November last year.

The Central Bank of Nigeria targeted 11 per cent inflation rate for 2017, but it only succeeded in slowing it down to 15.37 per cent at the end of the year from 18.72 per cent in January 2017. The apex bank has maintained a tight monetary policy and pegged benchmark interest rate at 14 per cent since July 2016 after inflation rose to 16.5 per cent in June 2016, which was then highest in a decade.

“I don’t thing inflation rate has slowed down to the threshold where the MPC would want to review Monetary Policy Rates downward in this first quarter,” said Akinloye Ayorinde of the Research and Securities Department, Afrinvest (WA) Ltd. “We may see an easing of the monetary policy towards the second or third quarter as inflation continues to trend downward.”

He argued the economy is still too fragile for a cut in monetary policy rates.

It is not the right for the Central Bank to cut interest rate, because inflation rate at over 15 per cent is still very high, claimed Boniface Chizea, an economist and managing consultant, BIC Consultancy Services Ltd. He noted that interest rate cannot be lower than inflation rate.

The CBN Governor Godwin Emefiele had late year hinted that the bank may consider tinkering with rates this year as the economy improves further.

NBS data showed that food inflation was up 19.4 per cent in December, compared to 20.3 per cent rise in the previous month.

Petrol price increased 18 per cent month-on-month during this period as Nigerians suffered fuel scarcity throughout the Christmas and New Year holidays. Although government pegged Petrol pump price at N145 per litre,  it rose to as much as N200 per litre in most parts of the country during last Christmas.

The MPC of the CBN is bid to have its first meeting for the year on January 23, where it would look into monetary policies.