CBN Rate Cut Signals Economic Recovery – Stockbrokers

Stockbrokers on Tuesday said the decision of the Central Bank of Nigeria (CBN) to reduce interest rates signals a cautious shift toward economic growth, but warned that downside risks persist.

The News Agency of Nigeria (NAN) reports that the Monetary Policy Committee (MPC), at its 304th meeting held from Feb. 23 to Feb. 24 in Abuja, cut the Monetary Policy Rate (MPR) by 50 basis points to 26.50 per cent.

The committee also adjusted the asymmetric corridor to +50/-450 basis points around the MPR, retained the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45 per cent and 16 per cent for Merchant Banks, and maintained the Liquidity Ratio at 30 per cent.

The stockbrokers, in separate interviews with NAN, said the move reflected growing confidence in macroeconomic stability, particularly amid moderating inflation and relative stability in the foreign exchange market.

Mr Tajudeen Olayinka, Chief Executive Officer of Wyoming Capital and Partners said that the decision by MPC to drop MPR by 50 basis points was commendable, in view of numerous headwinds that could create shocks of different magnitudes.

“The committee was mindful of possible impact of a large interest rate cut on foreign portfolio inflows, and so, would not take interest rate decision that could hurt capital importation or disturb exchange rate stability.

“The decision to adjust interest rate to 26.5 per cent is in order. Time will come when interest rate will align with the market, and I think MPC of CBN is waiting for that opportunity to show itself,” he said.

Also speaking, Mr David Adonri, Vice President of Highcap Securities, said the rate cut suggested growing confidence by monetary authorities in the economy.

He noted that the move might had been influenced by recent moderation in inflation and appreciation of the naira, indicating a possible shift toward a pro-growth, expansionary monetary policy.

According to him, the MPC may be easing monetary policy on the assumption that fiscal interventions were beginning to address underlying structural imbalances in the economy.

“After the last reduction of MPR before this latest one, there was a spike in inflation rate.

“Perhaps current reduction indicates that the Monetary Authority is confident that prevailing economic factors now warrants relaxing monetary policy.

“This may be justified by the recent moderation in inflation rate and appreciation of the Naira.

“Meanwhile, the downside risks emanating from rural insecurity remains a big threat to inflation and financial stability,” he said.

Source: News Agency of Nigeria (NAN)