CBN Governor
CBN Governor

anaLYST at FBN Quest has predicted that the benchmark interest rate-the Monetary Policy Rate, MPR, – will rise to 15 per cent by the end of the year. In a note obtained by Nigerian Pilot, the expert stated that although the contraction in the economy may prevent the Central Bank of Nigeria, CBN’s rate setting body, the Monetary Policy Committee, MPC, from hiking the MPR at its meeting this month, the rate will
gradually climb from the prevailing12 per cent to 15 per cent by the end of the year. The analyst described the new forex policy as “devaluation under another name,” stating that it will result in the MPC tightening its stance in order to check inflation. He said, “We expect the MPC to tighten its stance and see the policy rate at 15.00 per cent at end-2016. It can legitimately argue that its influence is blunted in the absence of fiscal and structural reforms.
Rate hikes beyond the rate of inflation, as in March, are unlikely, given the contraction of Gross Domestic Product (GDP).” Besides, the expert noted: “The CBN has exceeded all expectations with its market-driven liberalisation. There will be rewards for its boldness in the form of inflows for the interbank market but we doubt these will be substantial in the near term. Given the modest level of official reserves, the CBN will have to trim its own supply to the market. Naira depreciation beckons therefore, and we see an end-year rate of N300 per US dollar.” According to the FBN Quest analyst, the new forex policy, being a devaluation of the naira, will mean that the Federal Government will have to rework the 2016 budget. “The Federal Government has taken some good steps on recurrent spending compression, non-oil revenue generation and the plugging of leakages. If these prove inadequate, we are confident that it will rein back its capital expenditure rather than allow the sizeable projected deficit to expand,” they stated. The expert also predicted, “We see FGN bond yields within a range of 14.50 per cent to 15.50 per cent in the next quarter in the middle of the curve. The pressures of deficit financing and inflation are pushing up yields.” It will be recalled that at the end of its May meeting where it left the MPR unchanged at 12 per cent, the CBN Governor, Mr. Godwin Emefiele, citing the need to avert an imminent recession, had announced that the forex market would be liberalised. Reacting to the announcement, Chief Africa Economist at Standard Chartered in London, Razia Khan, said, “Any real liberalisation would be accompanied by some tightening, as a stabilisation measure, at least in the short term. That does not appear to have been considered. This is at best curious, at worst very worrying.”

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