CBN may keep rates steady to woo foreign investors – Ebo

In spite of expressed optimism by the governor of the Central Bank of Nigeria (CBN) that the bank will begin a gradual cut in monetary policy rates by the end of the second half of the year, the Chief Executive of Afrinvest Securities Limited, Ayodeji Ebo says a rate cut will be unlikely due to the high risks associated with the economy.
Already, some finance and investment experts have warned that the cancelled meeting of the Monetary Policy Committee (MPC) was a signal to uncertainties in the country. This they said, would make foreign investors to hold back further investments until full confidence was restored.
He spoke at the Finance Correspondents Association of Nigeria (FICAN) Economic Outlook with theme: ‘Nigerin Economy and Financial Market Outlook: 2017 Review and 2018 Outlook’ held at the FICAN Centre, Lagos.
The CBN governor, Godwin Emefiele, had, on Wednesday, said that the apex bank planned to begin a gradual rate cut by the end of the first half of the year as inflation continued to plummet. Inflation which had risen to almost 19 per cent last year January had maintained a steady decline standing at 15.37 in December.
Emefiele said once inflation got to low double digits “and high single digit happens, then it should be easy for the MPC to begin to look at easing. I want to think that between the end of the first and second quarter, we should begin to see easing.”
Ebo stated that a cut in rate would impact rates at the money market causing investors to consider putting their funds in other countries, where the risks are not as high with a good enough returns in investment.
“This will affect the current stability at the foreign exchange market and that is what the government would not want at a time the country is approaching an election period.”
He explained further that, while the argument for a cut in rates is for increased lending to the real sector, a lower benchmark interest rate would not result in increased lending by banks.
“Bringing down the MPR will not translate to improved lending by the banks. There is nothing like patriotic lending, because we have to grow the economy. The banks will not use private money to grow the economy, when they still see that there is evident risk within the space. It is about the risk environment,” he stated.
According to him, most of the companies that they would have lent to are struggling in terms of returns on their investments, as they have factored in the cost of power, as well as infrastructure and by the time they factor in those things their business is not profitable. They cannot service their loans, so the bank will not lend to them.
“For instance a lot of banks lent to the power sector during the privatisation, but a lot of them got their hands burnt. So, no matter how low interest rate come, it will not translate proportionately to increased lending, as long as they continue to see that risks,” Ebo stated.