Is CBN gravitating closer to an interest rate cut in 2018?

Lukman Otunuga, Research Analyst at FXTM comments on Inflation

This was the question on the minds of many investors after inflation in Nigeria rose at its slowest pace in over two years. Consumer prices in the largest economy in Africa have slowed, from 11.61% in May to 11.23% MoM (Month over Month) in June, marking its 17th consecutive month of decline.

With inflationary pressures slowly becoming a past theme and edging closer towards the Central Bank of Nigeria’s 6-9%, an interest rate cut could be around the corner.

However, external risks ranging from global trade tensions, a broadly stronger Dollar and prospects of higher US interest rates could obstruct the central bank’s efforts to cut rates.

While uncertainty ahead of the general elections in 2019 could force the CBN to maintain the status quo to prevent any unexpected shocks, an interest rate cut has the ability to stimulate economic growth; however, it could in turn widen the divergence in monetary policy between the CBN and Fed, consequently sparking capital outflows.