There is a strong expectation that the Central Bank of Nigeria (CBN) will cut the benchmark interest rate when its 12-member committee meets for its 2-day Monetary Policy Committee (MPC) meeting starting on Monday, November 24.
The anticipation for another rate cut is reflective of recent positive developments in the domestic and global macroeconomic conditions.
It includes the sustained disinflation, improved output growth, stable exchange rate and robust external reserves.
These prevailing macroeconomic conditions are what the committee considers when making decisions on the monetary policy rate, which is also known as the benchmark interest rate.
Pinnacle Daily reports that CBN uses the MPC meeting to make decisions on key economic parameters and to rein in inflation.
Key domestic indicators
Nigeria’s headline inflation has sustained a deceleration to 16.05 per cent in October year-on-year from 18.02 per cent in September.
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This deceleration now marks the sixth consecutive month of disinflation, reinforcing that price pressures are easing faster than expected.
The deceleration in headline inflation was supported by the broader disinflation narrative in food inflation, which carries the largest weight in Nigeria’s inflation structure, and core inflation, which excludes the prices of volatile agricultural products and energy.
According to the latest consumer price index report, food inflation eased to 13.12 per cent in October from 16.9 per cent in September, while core inflation likewise fell to 18.69 per cent in October from 19.53 per cent in September.
External Reserves have improved from $42.35 billion as of September 30 to $44.19 billion as of November 20.
The foreign exchange market has been stable since September, when the MPC held its meeting, with the naira remaining stable below the N1,500 mark to the dollar.
It closed at N1,458 to the dollar on Friday, November 21, relative to N1,478 per dollar as of September 30.
Global consideration
The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) in October cut the federal fund rate by 0.25 per cent for the second time this year.
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The Fed’s decision to lower interest rates, analysts say, was reinforced by weak labour market data, and there are strong expectations that the FOMC will implement another rate cut in December.
What analysts expect from the committee
Analysts believe that it is a major signal that underlying inflation is gradually normalising and that the medium-term macroeconomic environment is becoming more stable.
“I think the CBN will further ease the money rate at the next meeting. This is based on the relative improvement in the macroeconomic indicators, particularly the inflation rate,” the Head of Financial Institutions Rating at Agusto & Co, Ayokunle Olubunmi, said.
He had told Pinnacle Daily that if inflation is trending down, as it significantly represents, and foreign exchange inflow is improving, then these are positive signs that the CBN should cut the rate.
He also argued for some level of stability in the economy but noted that it remains fragile, which might make the expected rate cut figure not be that significant.
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Since September, the MPC has cut the benchmark interest rate for the first time in about two years, and inflation has steadily eased further.
This has helped strengthen market expectations, Analysts at Cowry Asset Management said, stating that another round of monetary easing is imminent.
For them, CBN might extend its dovish stance in a bid to stimulate economic activity and deliver an additional 100 to 200 basis-point cut to the benchmark interest rate.
“Yet, beneath this improving inflation outlook, the real economy continues to struggle with elevated operating costs, fragile consumer demand, and multiple structural pressures that have kept growth momentum muted.
“Against this backdrop, the Committee faces a delicate balancing act—providing sufficient policy support to ease financial conditions and sustain economic activity, while ensuring that inflation remains firmly on a downward path in an environment still marked by supply constraints and lingering macroeconomic vulnerabilities.” Cowry Asset analysts added.
In its Monthly economic and financial report for November, the United Capital Research team had projected that if inflation eased further in October, their forecast would materialise, and they expected interest rates and yields in the fixed income market to drop.
“We also expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to cut the Monetary Policy Rate by 1% to 2%. This is also expected to have a moderating impact on interest rates and yields on fixed-income securities,” they stated.
When the interest rate is cut, it strengthens the naira, and a positive rate cut differential favours Nigeria, said the Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane.
This impacts the cost of borrowing, as it moderates debt service by the government and helps the country raise additional funds.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
