THE Central Bank of Nigeria (CBN) should cut the benchmark interest rate at its next committee meeting following the trend in domestic and global inflation rates, the Chief Executive Officer of the Financial Derivatives Company (FDC), Bismarck Rewane, has said.
His expectation is that the Monetary Policy Committee (MPC) of the CBN would likely cut the rate by 25 basis points.
Rewane shared this view on Thursday, July 17, during Channels Television’s Business Morning programme while commenting on Nigeria’s latest inflation figures.
According to him, the increasing rate of global inflation relative to the declining inflation rate in Nigeria is an obvious sign for the CBN to cut interest rates.
“Definitely, I’m not a gambling man and I’m not a speculator. My instincts and intuition tell me that there will be a cut of 25 basis points.
“Why do I say that? Because global inflation has increased and Nigerian inflation is declining,” he said.
The benchmark interest rate is the official rate that guides banks and other financial institutions on their lending rates to macro, small, and medium enterprises.
Rewane explained that, depending on the methodology used, the expectation is that the interest rate should come down.
The renowned economist explained further that because in the United States, the United Kingdom, and even in Europe, inflation is increasing while it is declining in Nigeria, it gives the country some wiggle room to cut rates.
“Therefore, the probability is that maybe 40 per cent up or 60 per cent drop of about 25 basis points. And that will not kill the currency.
“The currency is strengthening because of the discipline in the monetary policy framework, explicit inflation targeting and actually having a transparent foreign exchange market. That has helped,” Rewane explained.
He believes everyone seems to agree that the Nigerian economy is leaping out of crisis, adding that if not by now, the country’s inflation would have been worrisome for local and international players.
On the latest inflation figure, Rewane explained that looking at the figure year-on-year and month-on-month would always bring one back to ask what the base year is.
He said it would also make one ask what the economy looked like this time last year.
“If you look at all those variables, you can see that the downward trend in inflation was maybe due to the base year effect.
“Having said that, because core inflation, food and month-on-month have increased, it tells you something that there is a structural defect in the economy that still remains,” Rewane maintained.
According to him, the general expectations are that the price of oil is going to decline as the Dangote Refinery is doing all it can to achieve uniform pricing across the country.
“The exchange rate is stabilising, even though it is shooting against the dollar, but the fear of massive devaluation is no longer there.
“And, there is every indication that the Central Bank of Nigeria is trying to contain money supply,” he said, adding that these are signs that inflation is moderating.
The ICIR reports that the CBN had scheduled Monday, July 21 and Tuesday, July 22, to hold its MPC meeting.
At its last MPC meeting in May, the apex bank committee kept the benchmark interest rate unchanged at 27.5 per cent along with other parameters, The ICIR reported.
The decision marked the second time in a row it held rates unchanged despite the easing of headline inflationary pressure.