BofA Sees CBN Cutting Rates on Sept 22 as Inflation Slows and Naira Firms
By Aboki Forex —
Bank of America expects the Central Bank of Nigeria to resume cutting interest rates at next week's policy meeting, helped by slowing inflation and a steadier exchange rate. The bank forecasts a 100 basis point cut when Governor Olayemi Cardoso announces the decision on Sept 22, with a similar reduction to follow in November.
That would bring the benchmark monetary policy rate to 24.5% by the end of the year.
Why BofA expects easing
Annual inflation slowed to 15.4% in August, and the naira is up 8% this year. BofA analyst Raghav Adlakha said that combination has created "room for the Central Bank of Nigeria to begin cautiously easing monetary policy."
"Declining domestic yields, improved foreign exchange stability, and moderating inflation has created conditions that are supportive of monetary easing," Adlakha said in the report.
The Fed risk to the plan
The report flags a risk of reversal in portfolio inflows that could put pressure on the naira after the Federal Reserve raised US interest rates by a quarter percentage point on Wednesday, with a median projection for one more hike by year end.
That could deter the Nigerian central bank from cutting as aggressively as BofA expects. While the easing cycle may start in September, the CBN might prefer more gradual 50 basis point cuts, or it could delay further easing until global financial conditions become more supportive.
Naira seen at 1,300 to the dollar
Bank of America is also predicting the naira will appreciate towards 1,300 against the dollar, supported by foreign exchange reserves above $50 billion. That view is in line with analysts at Citigroup, who expect the currency to remain broadly within a 1,300 to 1,350 per dollar range.
The naira was quoted around 1,330 per dollar in afternoon trade in Lagos on Wednesday.
For Nigerian businesses and consumers, a rate cut would lower borrowing costs on new loans and could ease pressure on companies servicing floating-rate debt. It would also signal that the CBN believes price pressures and the currency are stable enough to shift focus towards supporting growth.