Ethio Lease this month became the first foreign-owned company to secure a financial services license in Ethiopia. Simplifying the country’s forbidding bureaucracy would help the country’s leasing market to reach its full potential.
Nigerian central bank delivers an unpredicted rate cut
Nigeria's central bank has slashed the benchmark interest rate after two years of holding firm.
Nigeria’s economy has been struggling due to low oil prices, and the International Monetary Fund predicts that the economy will grow by just 2% this year.
The surprise rate cut was announced on 26 March by the bank governor, Godwin Emefiele, after a meeting of the influential Monetary Policy Committee (MPC). Previously 14%, the benchmark interest rate has now been reduced to 13.5%, while cash reserve and liquidity ratios remain at 22.5% and 30%, respectively. This, even in the face of a projected sustained double-digit inflation rate. Inflation has been above 10% since 2015.
“The MPC decided by a vote of six out of 11 members to reduce the monetary policy rate by 50 basis points,” Emefiele said. “The MPC noted the positive moderate outlook for growth and the risk on the horizon. The committee also noted that having achieved a relatively stable exchange rate with price stability, it is imperative that the monetary policy should explore the next steps necessary for enhancing growth, reducing unemployment and diversifying the base of the Nigerian economy.”
Emefiele, whose five-year tenure ends in June, also said after the meeting that the committee is making recommendations for a rebasing of gross domestic product (GDP). Governments periodically rebase their GDP calculations to get a more accurate picture of the economy. Nigeria’s last rebasing was in 2014.
Implications for Nigeria’s economy
On the surface, the reduction of the rate is good news because bank lending rates and the cost of credit for borrowers will be lower. Analysts had expected the central bank to hold the rate but are now looking at the implications for the economy.
- John Ashbourne of London-based Capital Economics told Reuters: “This…suggests policymakers have made a clear decision to ignore their own inflation targets and to focus on providing monetary stimulus. […] I doubt that this will do much to boost growth, but it will hit the bank’s credibility with investors.”
- Local investment and business intelligence website Nairametrics argues the cut will neither stimulate nor dampen the equity market, as investors are in all likelihood “waiting for clearer macroeconomic direction in the Buhari administration’s second term. This is so because foreign portfolio investors are more interested in the fixed income market.”
President Muhammadu Buhari, who took six months to appoint a cabinet during his first term (2015-2019), had no clear fiscal policy for most of the period. Ahead of his inauguration in June, he is yet to decide on a host of policy matters – among other things, if Emefiele will be getting a second term or if the central bank will have a new governor.