Connect with us

Business

CBN may consider lowering rate as investments-driving sectors slow

Published

on

CBN to buy commercial papers from companies at single digit rates

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) may consider lowering its main lending rate for the first time in almost two years, as Agriculture and Industry sectors continue to slow when compared to preceeding quarters.

The MPC is meeting in Abuja on May 21 and 22, and is expected to make its decisions on interest rate, and other economic policy decisions known on Tuesday after its meeting.

The apex bank had kept the interest rate, which determines the rates at which banks give out loans, on hold after it raised it by 200 basis points to a record high of 14% in July, 2016.

The bank increased the rate to curtail rising inflationary trend, which peaked 12-year high at 18.72% in January, 2017, and to salvage Nigeria’s recessed economy.

This effort, though seemed to have effectively reduced the infation rate for the 15th consecutive month from 18.72% Year-on-Year (YoY) to 12.48% YoY recorded in April, 2018 (still above CBN’s range), has cringed growth as investors are discouraged from accessing bank loans for their investments due to the high interest rate.

Godwin Emefiele, CBN Governor, had expressed optimism that the nation’s inflation rate would return back to single digits after it rose to a double digit in February 2016.

According to Emefiele, “We are optimistic that food prices will come down, and as they come down it will help to complement the reduction in core inflation.

“We are hoping that by the middle of next year we should begin to approach the high single digits.”

As anxiety mounts up towards the outcome of the next MPC meeting, it is apparent that these investors (domestic and foreign), whose role are significant in boosting the aggregate GDP of the nation, await the outcome of the meeting before further investment decisions could be made.

This decision-awaiting time, however, has reflected on the GDP figure of the country as stated in Q1 2018 Nigerian GDP Report by National Bureau of Statistics (NBS) on Monday.

According to the report, Nigeria’s real GDP grew by 1.95% YoY in the first quarter of 2018, indicating a stronger growth from a year earlier, but when compared to the preceeding quarter, the economy slowed by 0.16% points from 2.11% growth recorded in Q4 2017.

Though positive growths were recorded in both Oil (+14.77%) sector, which contributed 9.61% to the total GDP, and Non-Oil (+0.76%) sector which accounted for 90.36% of the overall GDP, the Bureau said growth in the Non-oil sector was driven by Agriculture (crop production).

Read Also: Fitch affirms Nigeria at ‘B+’, says general elections could weaken progress

Meanwhile, the Agriculture sector which drove growth in the big Non-Oil sector has been on decline since Q3 2017, going to about 1-year low.

The sector slowed by 21.65% YoY in Q1 2018 when comapred to 26.13% YoY in Q4 2017 and 29.22% in Q3 2017.

Although the incessant herders-farmers clashes in some regions of the country in the first quarter of 2018 which affected farm produce significantly and lost of interest due security threats could be a reason for the steady growth decline in the sector.

But, many farmers who depend solely on bank loans to cultivate their farm lands, who have been discouraged over the years due to the high interest rate might have also contributed to the reduced productivity in the Agriculture sector, a sector which drove Non-Oil sector, plunging the Non-Oil sector’s contribution to the overall GDP from 91.47% and 92.65% recorded in Q1 2017 and Q4 2017, respectively.

Similarly, the Industry sector has been following the same trend since Q3 2017 of which its growth rate was 29.22% as against 26.13% and 21.65% recorded in Q4 2017 and Q1 2018 respectively.

Emefiele while addressing newsmen at the Spring meeting of the International Monetary Fund (IMF) in April said the bank might consider loosening its key lending rates as prices improve.

“We are till in the mode of tightening, but i can assure all of us that we will not tighten perpetually, that at some point, we will begin to loosen and i believe that those financial accomodation period are coming on very, very soon, ” he said.

With the significant drops in inflation, Agriculture and Industry sector growth, and a slight growth increase in Services sector to 54.35% YoY in Q1 2018 from 53.35% Q4 2017, it appears the financial accomodation period is finally here and MPC might just loosen the interest rate as expected.

 

RipplesNigeria… without borders, without fears

Click here to join the Ripples Nigeria WhatsApp group for latest updates.

Join the conversation

Opinions

Support Ripples Nigeria, hold up solutions journalism

Balanced, fearless journalism driven by data comes at huge financial costs.

As a media platform, we hold leadership accountable and will not trade the right to press freedom and free speech for a piece of cake.

If you like what we do, and are ready to uphold solutions journalism, kindly donate to the Ripples Nigeria cause.

Your support would help to ensure that citizens and institutions continue to have free access to credible and reliable information for societal development.

Donate Now