Wednesday, June 16, 2021

    Analyst cautions MPC on rate cut over inflation uncertainty spurred by elections spending

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    Babatunde Akinsola
    Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

    Analyst cautions Central Bank of Nigeria MPC over interest rate cut over inflation uncertainty driven by elections spending.

    The MPC “may still want to give it some time, particular as we are getting to the pre-election period,” Olalekan Olabode, head of research at Vetiva Capital Management Ltd. in Lagos, said by phone. “If we do not see a consistent reduction in month-on-month inflation, then we wouldn’t want a situation where the CBN is giving mixed signals — cutting rates now and needing to increase again later in the year if inflation picks up again.”

    Meanwhile consumer index inflation eased for the 15th straight month in April, moving closer to the central bank’s target and expanding room for monetary-policy makers to consider trimming their key interest rate.

    Consumer-price growth in Africa’s most populous nation slowed to 12.5 percent from a year earlier compared with 13.3 percent in March, the Abuja-based National Bureau of Statistics said in an emailed report on Tuesday. That’s the lowest rate since March 2016.

    The rate is even further below the benchmark interest rate of 14 percent, where policy makers have kept it since July 2016 to fight price growth and support an economy that contracted in 2016.

    Prices rose 0.8 percent in the month, the same as in March.

    Central bank Governor Godwin Emefiele signaled rate cuts when inflation comes closer to the upper end of the target range of 6 percent to 9 percent. The Monetary Policy Committee is scheduled to review rates next week.

    Nigeria’s newly constituted Monetary Policy Committee held the nation’s main lending rate at its first meeting this year as inflation pressures persist.

    The committee, which admitted five new members last month, unanimously decided to leave the benchmark interest rate at 14 percent, central bank Governor Godwin Emefiele said at a press conference in the capital, Abuja on Wednesday. That was in line with predictions of all but two of 11 economists in a Bloomberg survey. The policy rate is tight enough to reign in current inflationary pressures, he said.

    The MPC failed to convene as scheduled in January and postponed its March meeting because it lacked quorum after five members retired last year and lawmakers initially refused to screen President Muhammadu Buhari’s replacement nominees because of political differences. They finally approved five of six candidates, including two new central bank deputy governors, on March 22.

    Election Spending

    The central bank could still err on the side of caution as future inflation pressures may come from higher food costs in the wake of worsening insecurity that has disrupted production and supply.

    Price pressures could increase through higher state spending on this year’s budget, which has yet to be approved, and before elections due to take place in February.

    — With assistance by Simbarashe Gumbo, Renee Bonorchis, and Pauline Bax

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