Tax and Transfer Pricing

Changes to Rates Looms as MPC Meets

The Nigerian Monetary Policy Committee (MPC) have planned to meet next week in Abuja, between 19th and 20th of November, 2018. Though the agenda of the 264th meeting of the Committee has not been publicly revealed, several sources suggest that changes to the interest rate could be in the books. The committee has, since July 2016, retained policy rates like the Interest Rate at 14%, Cash Reserve Requirement (CRR) at 22.5%, Liquidity Ratio at 30% and Asymmetric corridor around the MPR at +200 and -500 basis points.

The MPC is charged with the onus of maintaining fiscal and monetary stability in the economy by regulating money in circulation in a bid to prevent inflation and keep general price level normal. Interest rate is used as a tool to regulate the inflation rate.

An upward change in the current interest rate has been put on the cards due to issues like the anticipated review of wages and salaries, food supply cuts, pre-election spending, among others, which could result in excess liquidity and fiscal injections in the economy. For instance, following the announcement by the Independent National Electoral Commission (INEC) of 18th November, 2018 as the commencement date of electioneering campaigns, it is expected that expenditure of political parties’ on campaign adverts, rallies and so forth signals an exponential increase in money supply.

It is noteworthy that an increase in the interest rate will make for more expensive borrowing, but higher earnings on bond investments. We look forward to the counteractive measures the Committee would put in place, in light of the afore-highlighted economic issues.

 

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