Monday, June 01, 2020 / 7:23 AM / by FDC Ltd /
Header Image Credit: FDC
In a surprise move, the MPC voted 7:3 to cut the benchmark interest rates by 100bps to 12.5%pa. This is the first rate cut since March 2019.
The Committee's major consideration was the need to strike a balance between price and exchange rate stability and stimulate economic growth. The decision to adopt an accommodative monetary policy stance in light of rising inflation (12.34%) and negative real rate of return for investors (-9.89%) was disapproved by some analysts who believe the decision is not the best solution for Nigeria at this time.
If history is any indication, the rate cut will have a muted impact on markets and only anchor expectations of key stakeholders. Growth is still projected to slide into negative territory in Q2 and Q3 with exacerbated inflationary pressures.
The good news is that the economy is expected to recover in Q1'2021 if policy makers demonstrate economic discipline and make tough decisions.
In the slides below, the FDC Think-Tank analyzes the implications of the MPC's decision on the economy.