CBN Survey Reveals 65.8% Nigerians Back Interest Rate Cut

The Central Bank of Nigeria’s (CBN) survey has revealed that 65.8 percent of respondents want the monetary authority to cut interest rates. The finding comes just days before the Monetary Policy Committee (MPC) convenes for its July meeting to decide on the future direction of interest rates.

The CBN’s Inflation Expectations Survey, published on its website, showed that 23.0 percent of respondents prefer interest rates to remain unchanged, while only 11.2 percent support an increase. This survey outcome underscores growing expectations for monetary easing among economic stakeholders.

However, despite the popular preference for lower rates, financial market analysts and chief executives of microfinance institutions say the CBN is more likely to adopt a cautious approach. They expect the MPC to maintain the status quo at the end of its two-day meeting on Monday and Tuesday.

Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co, said the current macroeconomic environment suggests the committee will likely hold rates. “The reason why I expect a hold is that if you check all the micro variables, although there seems to be some stability, it is still fragile. For instance, inflationary pressures remain, though they have decelerated.

“The FX stability is still very fragile, and the factors underpinning it are not that strong. So, for now, I believe they will adopt the wait and see approach,” he said.

Tilewa Adebajo, CEO of The CFG Advisory, noted that while inflation is slowing, there is still some skepticism due to recent changes in official data. “There is a consensus that the inflation trajectory is downward, but the question is by how much. There is also a cautionary watch on the rebased CPI numbers by the NBS,” he said.

He explained that the MPC’s decision to cut or hold will depend on whether it trusts the revised inflation data. “The proof of the inflation pudding will be if the MPC also has the necessary confidence in the NBS numbers to cut rates in a bid to stimulate growth and restore purchasing power,” he added.

Kazeem Olanrewaju, Group CEO of Alert Group, said the committee will consider both global and domestic economic conditions in taking its decision. “The MPC will weigh the world economic outlook, national growth projections, and the need to achieve key economic indicators, especially the macroeconomic factors. At the moment, things seem stable except for the unpredictability of the US president and policies,” he said. According to him, given the positive impact of recent CBN policies, the MPC will be inclined to consolidate the gains. He believes the MPR has remained unchanged for a while, so a modest reduction or at worst a retention of the current rate is more likely than an increase.

Olanrewaju stressed that monetary policy decisions must be coordinated with fiscal policy implementation. He said the prevailing macroeconomic indicators suggest that a more relaxed monetary stance would be appropriate to support growth and attract foreign direct and portfolio investments. He added that the MPC will be careful not to reverse recent gains, hence a cautious or mildly accommodative stance is more likely.

Taiwo Joda, managing director of Accion Microfinance Bank, also expects no change at this meeting. He observed that money market rates are already trending downward, which could signal some liquidity easing. “I noticed that rates are trending downwards in the interbank market, which could signal liquidity loosening. But I think there will be no change to the MPC in the next meeting,” he said.

Analysts at United Capital Plc are also in favour of a hold. They expect the MPC to retain the Monetary Policy Rate at 27.5 percent, keep the Cash Reserve Ratio for commercial banks at 50 percent, maintain the CRR for merchant banks at 16 percent, and leave the Liquidity Ratio unchanged at 30 percent.

However, they noted that the committee may consider a technical adjustment to the asymmetric corridor around the MPR, in order to fine-tune liquidity conditions in the financial system without sending a strong signal of monetary easing.

SOURCE: Business Day