Bloomberg

Financial analysts have described the decision of the Central Bank of Nigeria, CBN, to reduce the Monetary Policy Rate, MPR, to 13.5 per cent as a hasty decision with zero impact on boosting lending to businesses.

Contrary to analysts’ projections, CBN on Tuesday, at the end of its two-day bi-monthly Monetary Policy Committee, MPC, reduced the Monetary Policy Rate, MPR, from 14 per cent to 13.5 per cent, citing the need to signal a new direction towards improved growth.

Analysts, however, opined that the 50 basis points reduction in the MPR will have little or no effect in boosting lending to the private sector.

Citing the looming risk to inflation and the fragile state of the nation’s economy, analysts at Vetiva Capital Management Limited, described the CBN’s decision as ‘hasty own goal,’ which would not lead to increased lending to the private sector as envisaged by the CBN.

They said: “The decision was touted as a key measure to stimulate the economy by reducing the cost of borrowing. Whilst the decision will have an immediate impact on borrowing rates already benchmarked to the MPR, we are sceptical of a significant pass-through to the real sector as bank lending rates are notoriously sticky going down.

“Also, the decision seemingly ignores the looming risks to inflation — an expected increase in liquidity from the frontloading of a late 2019 budget, an increasingly likely review of the multi-year tariff order, MYTO, which has an impact on electricity prices, and most importantly a looming 67 percent increase in national minimum wage —all of which are likely to push inflation north for the rest of the year.


“Taking a view from recent history, where the MPC cut rates by 200 basis points in 2015, before subsequently reversing course within the space of a year, a rate HIKE might not be far off the cards, especially given the expected rise in inflation and the current fragile state of the economy.

“Overall, whilst the cut in rate is a signal from the MPC of a stronger pro-growth focus, we believe this decision is ultimately an own goal as the rate cut will do little to stimulate the economy and has the added disadvantage of distracting from its primary objective – price stability.”

Also commenting, analysts at Lagos-based Afrinvest Plc said: “We are not distracted to believe an easing cycle has begun; rather, we think policy stance remains intact considering global interest rate development and the desperation to sustain and retain flows.

“The CBN can always resort to Open Market Operations, OMO, to achieve the objective of attracting and retaining capital flows.”

Analysts at Lagos-based Cowry Assets Management Limited gave a similar opinion. They said: “The MPC’s decision to cut the policy rate by 0.50 percent was engendered by the feeling of sustainability in the level of stability of Nigeria’s macroeconomic indices which were expected to drive growth going forward and the signal by US Fed to leave Fed rate unchanged in 2019 which was expected to redirect foreign inflows into emerging and developing economies like Nigeria.

“We do not expect significant growth in credit to private businesses given the inelastic nature of the relationship between credit to private sector and reduction in MPR.”

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