Managing Director of Financial Derivatives Limited, Bismarck Rewane says members of the Central Bank of Nigeria Monetary Policy Committee (MPC) possibly overlook certain factors that should have necessitated a rate cut.
In a presentation to Channels Television, Rewane believes a rate cut would have resulted in more robust economic growth ultimately as was the case of neighbouring Ghana which just cut rates for the fifth time in 12 months. The Ghanaian GDP, he added, “is growing at 8.5%.”
At the end of its second meeting for the year on Tuesday, only one of the nine members voted for a cut. As a result, the benchmark Monetary Policy Rate (MPR) remained at 14%; Cash Reserve Ratio, 22.5% and Liquidity Ratio, 30%, on the ground that inflation is yet above the CBN’s single digit target; as well as the potentially expansionary budget expenditure likely to put pressure on the Naira.
Rewane listed factors that could have been considered for a cut to include the fact that Nigeria’s Q1 GDP growth is 0.16% slower than Q4; just as sectors that witnessed a slow down or contracted are those he termed “interest rate sensitive.”
Sectors that have high employment levels are those in the negative territory; he noted, adding that sectors with high employment levels are those in the negative territory; even as Treasury Bills rates are already down 500 basis points from 2017 levels.
“The economy needs a monetary impetus to boost budget stimulus,” he said, noting the Purchasing Managers’ Index at 51, from 59, besides the negative consumer confidence.
As a direct consequence of the decision to keep rates unchanged, the FDC boss said interest expense of companies will remain high with lending rates at between 23 and 25% per annum.
Corporate earnings, as a result, will continue to struggle on the impact of the unfriendly operating environment; following which companies are prevented from employing leaving unemployment and underemployment rate above 40%; even as deposit rates continue to fall.