Recession may change interest rates — Analyst

A senior research analyst at FXTM, Lukman Otunuga, has said the economic recession is likely to trigger changes in the benchmark interest rates in 2021 to support recovery.

Otunuga, in his 2021 forecast, argued that monetary policymakers will probably be concerned about the misalignment of interest rates in the fixed income markets, further supporting the argument for one or multiple rate cuts in 2021.

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He said the introduction of the Central Bank of Nigeria’s Special Bill as an alternative investment vehicle may absorb a proportion of the liquidity in the system and stabilize the interest rate environment, at least in the short term.

Year 2020 will be remembered for its extraordinary uncertainty, explosive market volatility, unprecedented events, supply chain upheavals and a worldwide wave of monetary policy easing.

“The outlook for the full-year GDP growth is 1.1 per cent compared to an estimated minus 4.1 per cent.”

Efforts have been made to harmonise exchange rates, introduce a market-based pricing mechanism for gasoline, adjust electricity tariffs to reflect the costs and reduce non-essential expenditures.

Otunuga said: “While there may still be short-term pain ahead, there is still time to enact a series of potentially politically unpopular reforms in line with the World Bank’s recommendations.”