Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, told THISDAY that the latest decision should be viewed against the cumulative movement in monetary policy and the corresponding moderation in inflation, rather than as an isolated rate cut.
Rewane said, “Let me put it this way, I think it’s time to look at the cumulative effect of all of this.”
He said MPC had recorded a combination of rate cuts, increases, and periods of holding the policy rate before arriving at the latest decision.
According to him, the cumulative 350 basis-point reduction must be considered alongside the decline in inflation, suggesting that the latest decision reflects a recalibration as the monetary environment changes.
Rewane also pointed to CBN’s focus on monetary transmission and high-powered money, saying the bank remains conscious of the risks that excessive liquidity could pose to price stability.
He stated, in an interview on CNBC, that the decision showed that CBN was prepared to deploy some of the buffers built up over the past period of monetary and foreign exchange adjustments.
“What he has done is he has used the buffers that were built,” Rewane said, referring to the financial and policy buffers available to the authorities.
His assessment suggests that the rate cut is not necessarily a retreat from monetary discipline, but a calculated decision based on the greater policy space created by improving fundamentals.
That space, however, does not eliminate the risks.
Rewane acknowledged the potential volatility around the foreign exchange market and the broader external environment, but stated that the available buffers provided room to absorb some of the pressure.
He added, “So there are some risks, but what he has done is he has used the buffers that were built. When I say buffers, financial buffers and policy buffers as well, to say, okay, let’s throw the dice, all right. And there’s enough. There’senough buffers, enough resolution, enough autonomy to actually build and go forward without actually distorting things.
“Worst-case scenario is that the currency is trading about N1320, while the Purchasing Power-Parity (PPP) value is about N1,100. So, assuming it moves 10 per cent of the range the other way, so it gives you N1,400 to N1,130 something. You are about N1,430, which is where the parallel market was two months ago or a month ago.”
Rewane added, “I don’t see that this could create massive volatility, bearing in mind that our neighbouring country, not neighbouring Angola, has just seen its inflation rate drop that sharply, seen interest rates cut, and so it’s not totally out of the woods.
“I mean, but clearly, what it has done is it has taken a position on the fact that, I am now ready to use my reserves and my savings to protect myself.
“His position was reinforced by the changing composition of Nigeria’s foreign exchange inflows, particularly diaspora remittances.”
However, Oye, while commending CBN for slashing MPR, described the decision as a decisive reset of monetary policy.
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