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As inflation continues slide all eyes on next MPC meeting - BUSINESSDAY

MAY 16, 2018

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With Nigeria recording its  lowest inflationary rate in 26 months at 12.48 percent, the pendulum has now swung to the Monetary Policy Committee (MPC) of the Central Bank Nigeria which is scheduled to meet less than 7 days from now.
The new inflation reports has set ball rolling for the next MPC meeting scheduled for the May 21 and 23 as expectations heighten after Aishah Ahmad, Edward Adamu, and the two other newly confirmed members of MPC shrugged off pressure to cut rates to stimulate economic activity at its last meeting.
The scope is wider for the MPC to cut its  benchmark interest rate from 14 percent at the meeting next week, according to analysts at Investment one research.
Johnson Chukwu CEO of cowry asset management said the MPC will look at other economic indicators including the 2018 first quarter GDP report before deciding whether to maintain price stability or expand growth.
“The MPC will be very careful because the upcoming political activities will endanger the injection of liquidity into the economy and the velocity of money,” Chukwu said by phone.
Headline inflations figures are however now 1.52 percent below the monetary policy rate (MPR), at 14 percent.
Godwin Emefiele, CBN Governor, had said, at the last MPC meeting, that the key macroeconomic variables, which the Committee believes to have continued to evolve in a positive direction, “should be allowed more time to fully manifest” in line with the current stance of macroeconomic policy.
“The continued slowdown in the increase in consumer prices should be a positive for business and consumer sentiment,” Investment one research report said.
The inflation rate grew to a double digit of 11.38 in February 2016 when the nation’s economy plunged into recession and rose to 12-year high at 18.72 percent in January 2017.
Since then, the rate has taken a downward trend, decreasing to 12.48 per cent in April, making it the 15th consecutive disinflation (slowdown in the inflation rate though still positive) in headline year on year inflation since January 2017 which represents 0.86 percent points less than the rate recorded in March 2018, which was 13.34 percent.
Chukwu maintained that moderating food inflation is the most important factor to watch out for, however he expects the trend to continue till the last quarter of this year.
Analysts at Financial Derivatives Company had already the forecast a 12 percent inflation rate, therefore its CEO Bismarck Rewane was not surprised.
“However it’s important to note is that headline month inflation is increasing which means that it won’t last for long before it translates to the general economy as a whole,” Rewane told BusinessDay.
According to Nigeria Bureau of Statistics (NBS), on month-on-month basis, the headline index increased by 0.83 per cent in April 2018, up by 0.01 percentage points from the rate recorded in March.
“Historical inflation is not as important as anticipated inflation; the point is that inflation will start to increase very soon and the only answer is to increase output,” Rewane added.
The MPC would be meeting on the direction of MPR, which determines the rates at which banks give out loans, at its next meeting.

Speaking in April in Washington CBN Governor had expressed excitement that inflation concerns were gradually ebbing at the back of the apex bank’s monetary policy stance, and signalled the regulator could begin monetary easing soon.
“At this time, yes, we are still in the mode of tightening…but I can assure all of us that we will not tighten perpetually, that at some point, we will begin to loosen and I believe that those financial accommodation period are coming on very, very soon,” Emefiele stated.
Investment one research report noted that given the recent sell-off by foreign investors in the secondary fixed income market, on the back of rising yields in the US and heightened geopolitical tensions, the CBN is aggressively tightening system liquidity to defend the local currency.
The CBN has being tackling excess liquidity in the interbank money market which worsened last week by inflow of N290 billion. The apex bank mopped up N454 billion from the market by selling secondary market (Open Market Operations, OMO) treasury bills last Friday.
Nigeria’s statistician-general, Yemi Kale said inflationary pressures could come from higher spending in the second half of the year, before general elections scheduled for February 2019.
The economy turned the corner in the second quarter of 2017 after five straight quarters of contraction and the government is bent on boosting spending to stimulate economic growth in Africa’s most populous nation.
The economy grew 0.8 percent in 2017, but average incomes have gone nowhere since 2015, in a country that produces people at an average of 3 percent annually.
Cardinal Stone research analysts expect headline inflation to trend lower throughout 2018, given the stability of foreign exchange rate at N360/$ levels, which is underpinned by the steadiness of oil prices at near $70 per barrel.
The high base effect of the Consumer Price Index (CPI) witnessed in 2017, is also expected to support the deceleration in headline inflation figures in the coming months.
“Traditional pre-election year spending and a possible rise in minimum wage pose as threats to our expectation of a downward trend in headline inflation. Other threats that can obstruct our expected direction of inflation are potential fuel crisis and continual herdsmen attacks in the Middle Belt,” Cardinal Stone analysts said.

 

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