Reflecting the harsh economic situation being felt in the country, Nigeria’s inflation figures which had risen to a high of 7.13 per cent in July is expected to further rise in August and September on the back of scarce foreign exchange and fuel price increase, a situation analysts say may spur the easing of monetary policy to aid growth.
As costs continue to head north in a country facing recession, analysts say they expect the monetary policy committee of the Central Bank of Nigeria to ease monetary policy so as to allow increased lending among banks.
Managing Director and Chief Executive of Financial Derivatives Company Limited, Bismarck Rewane noted during an Executive Breakfast Meeting at the Lagos Business School last week that Monetary Policy Rate which is a determinant of lending rates by banks will be reduced at the next Monetary Policy Committee meeting.
The MPC had at its last meeting in July raised benchmark interest rate by 200 basis points from 12 per cent to 14 per cent, in a move that surprised local investors and analyst who had expected the apex bank to favour growth above luring foreign investments into the country that is currently facing recession.
Bismark said he expects that Treasury Bills Stop rates will be allowed to decline sharply to 12 per cent per annum for 90 days and 14 per cent per annum for 180 days. He also projects that the MPC will cut cash reserve requirement to 20 per cent to allow banks have access to more funds. CRR is currently put at 25 per cent.
Inflation in July, according to the National Bureau of Statistics was majorly due to increases in energy and energy related prices as well as food prices. Likewise, increases in the Cost of electricity, kerosene, Solid Fuels, and ‘Fuels and Lubricants for Personal Transport Equipment’ groups had contributed to the rising inflation in July.
Analysts however say they expect inflation to continue to rise hovering between 17.6 and 17.7 per cent in August. Although the value of the naira at the interbank market had been within the range of N320 to N330 to the dollar, the value of the currency had continued to depreciate at the parallel market where it sells around N425 to the greenback.
According to analysts at FSDH Merchant Bank, inflation rate (year-on-year) is expected to “increase further to 17.71 per cent in August 2016. We expect the increase to come from the increase in the prices of food items and other non-food items as a result of the continued pressure on the value of the Naira.
The analysts noted that while the value of the naira appreciated at the interbank market by 1.56 per cent, it depreciated at the parallel market by 10.24 per cent last month. The naira had gained N4.92 to close at N316.24 to the dollar at the inter-bank market while it lost N43 to close at $420 to the dollar at the parallel market.
“The depreciation recorded in the exchange rate particularly in the parallel market between the two months and higher prices in the international market would put further pressure on domestic prices” the FSDH Merchant Bank analysts noted.
In the same vein, analysts at Financial Derivatives Company Limited say, inflation is estimate to rise to 17.6 per cent indicating a slowdown in the rate of month on month inflation witnessed in recent months.
The analysts who noted that the scarcity of foreign exchange had resulted in the widening gap between rates at the interbank and parallel end of the forex market, said “given that the bulk of the funding for economic activities is sourced from the parallel market, the persistent depreciation of the naira is a major issue for Nigerian consumers and producers.”