Analysts Differ on Interest Rate Expectation in 2022
Would the Central Bank of Nigeria (CBN) hike the benchmark interest rate in 2022? That’s a key question boggling the minds of investors in the private sector amidst changing global dynamics.
Nigeria has kept the monetary policy rate at 11.5% since 2020, though the headline inflation rate has moved up and down, policy direction remains statics.
With the global development, some analysts believe that the interest rates will be adjusted to ensure the local economy remains attractive to foreign investors.
It’s undoubtful, the petrol-powered Nigerian economy needs foreign investors participation in the economy. Recent data from the National Bureau of Statistics however indicated that capital inflow improved in the third quarter.
But the size, in relation to the largest economy in Africa’s gross domestic product, is still riddled with pressures from competing economies with better market dynamics.
Analysts have expressed different views about interest rate expectations for 2022 following the loose monetary policy of the Central Bank.
CBN has maintained a pro-growth stance to boost the real sector of the economy while the fiscal authority engages in heavy spending, though fiscal slippage eclipse government spending capability.
While this has resulted in borrowings, Federal Government (FGN) is confronted with the risk of sustainability of total public debt service costs.
In 2022, a quarter of the Nigerian budget spending plan is devoted to service debts and the government is expected to raise more than N6 trillion to close the revenue gap.
In a chat with MarketForces Africa, Cowry Asset Fixed Income Trade Oluwafemi Osinubi said the investment firm believe the CBN would not hike the monetary policy rate this year.
But SAMTL in its outlook for the year said interest rates will rise due to the move by global Central Banks shifting to tightening mode, adding that interest rates may start to rise for advanced countries.
Analysts said in the note that they expect the United States 10-year bond to finish higher as Federal Reserve begins to unwind quantitative easing.
In Nigeria, interest rates may most likely rise to deter investors from exiting the country, according to a note from Sterling Asset Management and Trustees Limited, SAMTL.
In the third quarter of 2019, the Central Bank banned non-banking financial institutions from participating in its open market operations (OMO Bills).
The move has continued to drag yield on fixed interest securities in the financial markets, banks interest yielding assets and funding costs have been impacted – albeit to a different degree.
In a report, FSDH Capital has also indicated its expectation on interest rate direction for 2022.
The investment firm indicates an expectation of upward momentum in interest rates, analysts at the firm expect financial services companies, specifically, banks would thrive in this environment.
In the note shared with clients, FSDH Capital said the higher interest environment implies banks would be able to lend at higher rates as well as invest in higher yield government securities in 2022, providing a boost for interest income. # Analysts Differ on Interest Rate Expectation in 2022
Read Also: CBN Policy Committee Keeps Benchmark Interest Rate
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