Further Interest Rate Reductions Possible If Inflation Continues Its Downward Trend, States Ekechukwu

Chijoke Ekechukwu, a financial expert and former Director-General of the Abuja Chamber of Commerce and Industry, has expressed support for the Central Bank of Nigeria's (CBN) decision to lower the monetary policy rate (MPR) to 26.5 per cent. He views this adjustment as a crucial measure to stimulate economic activity, especially with the ongoing decline in inflation.

During an interview with Arise News following the 304th Monetary Policy Committee (MPC) meeting on Tuesday, Ekechukwu indicated that the rate cut was anticipated, given the consistent decrease in inflation and signs of improved stability in significant economic indicators.

"We have come a long way considering where our inflation rate has been coming from," he stated. "From about 34 per cent at this time last year, early part of last year, we were at that high rate, and over the months it kept going down until we got to where we are today at 15.10 per cent. That has been informing the level of cuts or holds that the MPC would always have whenever they met."

Ekechukwu mentioned that he had foreseen the rate reduction due to the downward trajectory of inflation, particularly in food prices.

"I had predicted that I was expecting a cut, considering the fact that consistently the inflation rate had been coming down," he said. "When you also look at other factors, knowing that the major driver of inflation rates was food inflation in the past, and that food inflation is now on a single-digit level of 8.89 per cent, you see that that is a very good development."

The economist also highlighted the growing stability in Nigeria’s foreign exchange market and petroleum product prices as additional reasons supporting this policy shift.

"If you also look at the stability in the market — the FX market and petroleum product prices — you see that these are all indicators that we needed to bring down the rate," he commented. "The essence of bringing down the MPR is just to begin to try to stimulate the economy, because until you start coming down, the deposit money banks are going to continue to sustain very high interest rates, which will not be good enough for the system."

Ekechukwu further noted that economic metrics such as the Purchasing Managers’ Index (PMI) are already showing positive signs of recovery.

"A good thing is that we already have the Purchasing Managers’ Index as high as 55.4, which means that we are doing very well in manufacturing," he explained. "And we expect that that figure should go up when the system starts stimulating itself, especially with interest rates coming down."

He suggested that further reductions in the policy rate could be implemented if inflation continues to decrease.

"Coming from where we were, you see that this decision is significant," he remarked. "The CBN had a lot of issues in their hands — first to stabilise the economy and stabilise the rates."

In his view, the apex bank has made notable progress in restoring financial credibility and market stability.

"There was a time we had a lot of outstanding obligations with international bodies, and our letters of credit were even being dishonoured in the international market," he recalled. "But of course, all these things have been stabilised. A lot of work has been done by this institution and we give them kudos."

Ekechukwu added, "Now that we have such a level of stability, it is time for them to start growing. I expect that in the next MPC meeting another drop — even if it is marginal like this one — will happen."

While acknowledging the rate cut, the economist cautioned that its immediate impact on borrowing costs might be limited due to the relatively small magnitude of the reduction.

"The cash reserve ratio has remained the same at 45 per cent. The CBN has been using that to reduce money circulation and to curb inflation," he observed. "The reduction in the MPR is marginal and may not significantly affect interest rates immediately, but it will come down — that is what I expect."

He explained that the ongoing bank recapitalisation efforts could also contribute to lower lending rates.

"With the number of banks meeting their capitalisation levels, the system will have a lot of funds," he stated. "And when that happens, even the banks themselves will bring down their rates because they will have a lot of funds looking for where to put them."

Ekechukwu also defended the CBN's measured approach to monetary policy, pointing out that sudden policy changes could lead to economic instability.

"The central bank is a very conservative institution," he asserted. "You don’t want to take a sharp decision today which you will have to reverse tomorrow. It is good for things to be sequential — sequential growth and sequential reduction."

He warned that global economic developments could also shape Nigeria’s economic trajectory.

"There are many other factors that influence the economic situation of any country," he noted. "Somebody somewhere in the United States may just wake up and take a decision that will affect the global economic situation. That is why we need to be cautious."

The economist further cautioned that increased spending associated with electoral activities might influence future monetary policy decisions.

"It is actually the other way around," he corrected. "The decision and the spending of the electoral body may affect the next decision that will be taken, because with elections pending a lot of money will flow back into the system."

According to him, such an influx of cash could complicate efforts to manage inflation.

"When that money flows back into the system, it may affect the control of monetary policy in terms of reducing money circulation," he explained. "Most of these monies may not even be within regulated areas — they may be coming from somewhere — and so you cannot even measure the volume of money in the system."