Given the recent inflation figures released by the National Bureau of Statistics (NBS), chances that the Central Bank of Nigeria (CBN) will bow to pressure and cut interest rate has grown a lot slimmer, as inflation hits a 17-month high of 11.61%, over an unending increase in food prices.

The prevention of inflow of food items from neighbouring countries through the country’s land borders in an effort by the country to curb smuggling since August 2019, has led to higher food prices which reflected in the inflation figures by NBS, with the consumer price index, up to 11.61% in October from 11.24% in September.

Meanwhile, according to The Guardian, Mr Lukman Otunuga, a senior research analyst at FXTM, has disclosed that it seems impossible for the CBN to cut interest rate from 13.5% in its monetary policy meeting coming up later this month if the apex body doesn’t want to increase inflationary pressures within the economy.

Increasing food prices might erase chances of CBN cutting the interest rate
Lukman Otunuga, FXTM
He stated that “due to the uptick in inflation, the sentiment against interest rate cut now is likely to roll over into 2020”.

“Although one of the apex bank’s objectives is to achieve price stability, an interest rate cut has the potential to stimulate consumption, which accounts for roughly 80% of Gross Domestic Product (GDP).

“The next major economic release from Nigeria will be the third-quarter GDP figures, scheduled for November 25. Markets are predicting growth to expand by two per cent. Should the report disappoint, the CBN could be forced to take action despite the threat of rising inflation.”

Generally, analysts expect the CBN to hold key rates when it holds its monetary policy meeting this month.

“Given the increase in inflation, we now expect that policymakers will leave their key rate on hold,” said Senior Emerging Markets Economist at Capital Economics, John Ashbourne.

However, the CBN Governor, Godwin Emefiele, reportedly speaking on the gains of the border closure, noted that rice and poultry farmers in Nigeria had experienced respite with reduced smuggling, as their farming communities were full of activities, while their warehouses were cleared of inventory backlogs.



https://nairametrics.com/2019/11/19/increasing-food-prices-might-erase-chances-of-cbn-cutting-interest-rate/

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