Ahead of the 2019 general elections, the Central Bank of Nigeria has predicted a gradual drop in interest rates.
The Director, Other Financial Institutions and Supervisory Department, CBN, Mrs. Tokunbo Martins, said over the weekend in Lagos that this had become imperative in view of the Federal Government’s efforts to reduce domestic borrowing and increase borrowing internationally, especially when inflation rate had come down, for 14 consecutive months, to stand at 14.33 per cent currently.
She said this was because the Federal Government would not want to crowd out borrowers in Nigeria, and the fact that it was cheaper to borrow abroad.
Martins said the yield for the 20-year FGN bond had come down from almost 20 per cent to 13 per cent, while the yields on treasury bills were also dropping.
“Now the inflation rates have come down for 14 consecutive months currently at 14.33 per cent, I am sure those interest rates would come down gradually. I cannot promise it will come down immediately like we all want, but it certainly will,” she said.
One of the leading firms in frontier and emerging markets, Exotix Capital, had predicted that the CBN might reduce interest rates ahead of the 2019 election year.
The firm, which maintained in its December 2017 forecast that Nigeria would face fragile economic recovery this year, argued, “While GDP growth has turned positive, it remains low and driven primarily by a recovery in the oil sector and will require a greater effort on behalf of the Federal Government to diversify the non-oil economy.”
But despite predicting a likely increase in inflation in the second half of the year due to what it described as “election-related expenditure and fiscal slippage,” the firm said although inflation had maintained a downward trend, it “remains high and persistent. We suspect that an increase in inflation is likely towards the latter half of the year, fueled by election-related expenditure and fiscal
slippage.”
Specifically, the firm said, “We expect a cut in Nigeria’s Monetary Policy Rate in the second half of 2018 in an effort to spur domestic demand ahead of the election, notwithstanding the likely rise in inflation during this period.”
