Indications have emerged that the Central Bank of Nigeria is unlikely to force down interest rates in the country despite calls by some economists for it to do so.
On Thursday the naira snapped a four-day retreat against the dollar with Bloomberg reporting that it fell on speculation that the CBN will hold interest rates at a record high as inflation stayed above its target.
According to the report, the naira slid 0.1 per cent to 157.045 a dollar by 2:58 p.m. in Lagos, on Thursday. The currency had gained 3.9 per cent last year, the strongest performance among African currencies tracked by Bloomberg.
Nigeria’s inflation rate eased to 12 per cent in December, from 12.3 per cent a month earlier, the first decline in three months as the effects of flooding that damaged agricultural output began to recede. The CBN’s target is below 10 per cent. Core inflation, which excludes agricultural products, rose 13.7 per cent in December from a year earlier, compared with 13.1 per cent in the previous month, the nation’s statistics bureau said today.
Commenting on the development, Africa strategists at Citigroup Incorporated in Johannesburg, Leon Myburgh and Coura Fall, said the development does not support a rate cut.
“These data indicate that underlying inflationary pressures remain high in the economy and do not support monetary easing anytime soon,” they wrote in an e-mailed note on Thursday.
The CBN’s Monetary Policy Committee kept the benchmark interest rate unchanged at 12 percent in its meetings last year to curb inflation and support the naira.
At the start of the year, economist predicted that inflation rates will drop to single digit.
However, some economists insisted that rather than allow the rates to be market-driven, the CBN had to take a radical approach and force it down.
The Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, who supports this view, said last Friday that, “For us to build the real sector, lending rates have to be in single digits.”
He explained that with most of the banks declaring huge profits, if rates are forced down, they will be able to readjust.
However, economists such as the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, insist that the country will witness a declining interest rate environment in 2013, noting that interest rates will continue to be market-driven.
According to Rewane the interest rates will be affected by the CBN’s adjustment of the MPR, downwards from the current level of 12 per cent “in view of lower inflationary threats”.