Otunuga: Why CBN may cut key interest rates again

Lukman Otunuga, research analyst at FXTM, says the Central Bank of Nigeria (CBN) would likely cut interest rates further if macro economic conditions in the country improve.

Otunuga was reacting to an announcement by Godwin Emefiele, CBN governor, which detailed a reduction in benchmark interest rate, on Tuesday.

Pegged at 14% for almost three years, the monetary policy rate (MPR), otherwise known as interest rate, was cut by 50 basis points to 13.5 % in order to reduce inflation levels and accelerate capital inflows via renewed investment drive.

Speaking via a statement, Otunuga said the rate cut had hitherto been stalled by uncertainties linked to interest rate differentials between the naira and the US dollar.

He, however, said speculations of a possible rate cut by the US Federal Reserve had given the CBN the push to reduce MPR.

“Investors were caught completely off-guard on Tuesday, after the Central Bank of Nigeria (CBN) unexpectedly cut its benchmark interest rate for the first time in more than two years in an effort to support growth,” the statement read.

“The central bank reduced interest rates from 14% to 13.5% as inflationary pressures eased and macroeconomic conditions stabilized during the first quarter of 2019.

“One of the initial arguments against a possible rate cut in Nigeria was the widening interest rate differentials between the Dollar and Naira.

“However, a ‘patient’ Federal Reserve coupled with rising speculation of a possible rate cut in the United States, has offered the central bank some breathing room to take action.

“Today’s move by the CBN may open the doors to further rate cuts in the future, especially if macroeconomic conditions continue to improve and inflation cools further.”