“Nonetheless, with inflation rising by 17.6 per cent in August and negative real interest rate increasing to – 3.6 per cent consequently, it remains unlikely there will be a cut in the benchmark interest rate as such action could risk eroding the credibility of the MPC”.
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The overspending is always the outcome of a combination of push and pull factors, majority of which bother on excessive demands from public sector workers for improved conditions of service, an urge to please the electorate with new projects and subsidies on utilities, the intermittent slump in commodity prices and the resulting impact on budgeted revenues. Last month, it stood at 6.26 per cent, lower than 6.4 per cent in July.
The 3.1 deficit was largely due to corresponding shortfalls in revenues from petroleum as well as tax earnings from income and property taxes.
The central bank may have recognised it needs to lower rates to check a slowdown in private-sector credit growth, Bohlund said.
It cited the stability in inflation and performance of the cedi as the principal reasons for the decision.
But addressing journalists shortly after the two-day MPC meeting which was held at the CBN headquarters in Abuja, the CBN Governor, Godwin Emefiele said the bank chose to hold the lending rate in order to maintain its primary objective of price stability. Last week the central bank said the base rate equaled its Central Bank Rate and not the Kenya Bank’s Reference Rate.
The governor added that it will continue to monitor developments on the market and respond accordingly.
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The banking regulator has traditionally used the CBR to keep inflation in check as well as support the shilling in the exchange market. As at September 15, 2016, the cedi had cumulatively depreciated by 4.1 per cent compared to 16 per cent in the same period a year ago. In this light, the MPC believes that as inflows improve, the naira exchange rate should further stabilize. “So I am expecting that if we have that reserves, then the MPC will then look at it and maintain the rates”, he stated.
