May 29 (Lagos) - The Monetary Policy Committee of the Central Bank of Nigeria voted to reduce its key benchmark lending rate or the MPR to 12.5% from 13.5% earlier this week.
Lowering interest rate signal a willingness to let the currency weaken. The last time this CBN regine played with the interest rates was in late 2015 when the abruptly reduced the MPR only to raise it again few months later in early 2016.
During that short period, the Naira tumbled to levels which are now normal in the parallel market. Nigerian economy was wrecked by that one decision of the CBN in late 2015 to reduce the MPR abruptly. This time it may not get that bad since the devaluation has already happened.
All the same, the Central Bank seems utterly confused about what the want to achieve. Lowering the interest rates without sound reason will lead to further inflation and possibly another devaluation in a couple of years or sooner.
The CBN also stopped Nigerians from investing in Treasury bills which could in fact fuel demand for Dollars as a safe haven investment. While Nigerians travelling abroad cannot even use their debit cards more than use it to eat food.
Bank stocks continued to tumble today as result of this cut in interest rates. The market may have over-reacted because banks have not really cut their lending rates or increased lending. The CBN tried its best to discourage banks from investing in t-bills by crashing the rate by force but my doing so the apex bank is showing dictatorial tendencies and it is not beneficial to the dynamics of the economy.
reporting for easykobo.com on Thursday, May 28 2020 from Lagos, Nigeria