CAN NIGERIAN INTEREST RATE BE LOWERED?

When next the monetary policy committee of the Central Bank of Nigeria meets, the issue of double digit benchmark interest rate may still dominate discussions.

This is because, according to Q2 figures released recently by the National Bureau of Statistics, capital importation into is still dominated by high interest rate ability to attract money market funds from outside Nigeria.

Yet, says the NBS, decline in the Q2 money market funds inflow dragged total capital inflow down during the period.

First, the total capital imported into the country was $5513.55m during Q2 this year, down 12.53% on the figure for Q1 ($6303.63m)

On their own, the main source of this inflow remained money market instruments which in Q1 and Q2 accounted for 56% and 48.4% respectively.

Now, after hitting quarterly high since 2016 in Q1 (3527.60m) inflow for money market dropped to $2670.93m in Q2 to June this year.

And it was a continuous drop from $1233.3m for April, to $864.94m in May and $572.66m in June.

This may mean that short term investors were already under pressure to run with their money perhaps because of issues with their local cost of funds or new opportunities. So this might be the right time to reduce the CBN reference rate from 14% it has been since 2016.

But then, where is the guarantee that another inflow source will step in to handle the stampede out of Nigerian money market this might cause?

Equity investment grew well in the quarter from $701.61m Q1 to Q2's 1048.39m but it is doubtful if growth rate here can be trusted to provide the cushion needed.

What about foreign loans? Well Nigerian governments have headed this way in recent years but at a speed that has many now wonder if in future these loans can be repaid.

Yet, local businesses are hurting badly from the high benchmark interest rate. What to do? Take the plunge and reduce interest rates and the CBN will soon be flooded with request for hard currencies to import raw materials and finished goods given Nigerian apettite for and dependence on these things.

So what to do? It looks like only crude oil revenue increase or even flow continues to have the answer. Very sad almost four years into a change regime that had raised great hopes amidst highest level of goodwill for any government in all the years of civilian rule.

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