Market News

In its latest macroeconomic briefing, Afrinvest West Africa analysts estimated a 14-basis point uptick in the monthly inflation rate to 1.7 per cent, driven by seasonal pressures from elevated food prices during the Eid-el-Kabir celebrations, despite an expected moderation in year-on-year inflation.

The forecast is coming as the National Bureau of Statistics is expected to release the June Consumer price index this week.

Afrinvest attributed the disinflationary trend to the continued strengthening of the naira and the high base year effect from the previous year’s inflation rate of 34.2 per cent. In June, the naira appreciated by 3.6 per cent to close at N1,529.71 to the dollar, buoyed by improved foreign exchange liquidity and the Central Bank of Nigeria’s (CBN) ongoing policy reforms.

“Our view for the inflation projection is hinged on the effect of the CBN’s strategic policy reforms that has seen the naira strengthen in the month of June and the high base year effect from last year’s 34.2 per cent inflation reading is a contributing factor”, the analysts pointed out.

However, despite the easing inflation trajectory and relative stability in the foreign exchange market, Afrinvest analysts expect the Monetary Policy Committee (MPC) of the CBN to maintain a cautious stance by holding all policy variables unchanged at its next meeting.

According to the analysts, the projection “is underpinned by elevated risks in the external environment, persistent shocks in major food baskets (recent incidents of insecurity and flooding is estimated to have devastating impact on food supply) and cautious undertone due to the delay in publishing the rebased GDP numbers for Q1 2025.

“During the last MPC meeting in mid-May, the CBN justified the need to keep policy rate elevated noting that inflationary risks remain potent – implying consistency with its prognosis from the beginning of the year.”

Afrinvest analysts also cautioned that any premature rate cut could threaten the fragile foreign exchange stability, saying ‘a potential rate cut could pose risks to forex rate dynamics which has largely been supported by attractive offers on OMO bills.’

Similarly, analysts at FSDH merchant Bank say they expect the MPC to continue to hold rates, with a possibility of a rate cut before the end of the year. “While there is a high possibility of prolonged hawkishness, we believe that the MPR will be reduced in Q4 if the inflation rate continues its downward trend and stays below 20 per cent.

“The possibility of reducing interest rate in the next MPC meeting is low and could be considered as premature, given that inflationary pressures are still evident, both globally and in the domestic economy.”