Nigeria’s central bank monetary policy committee (MPC) is likely to reduce interest rates when it meets on November 21 and 22, according to analysts at financial consulting firm, Financial Derivatives Company Ltd.
Stuck in a dilemma of whether to ease rates to spur economic activity or hike rates to curtail inflation, the CBN has often let the latter dictate the tune of its decision.
However, month-on-month inflation has eased in the months after July, when the MPC hiked interest rates by 200 basis points to 14 percent from 12 percent.
Buoyed by the decline in month-on-month inflation, analysts at FDC say the CBN may be under more pressure to cut rates at their next meeting, barely two weeks away.
“At its September meeting, the CBN expressed concerns about rising inflation, citing this as a reason for maintaining its contractive stance. Given that there is major clamour for lower interest rates and a stimulus package as antidotes to the recession, the reduced monthly inflation rate may sound like music to the ears of the doves in the committee,” FDC analysts said in a note to BusinessDay Nov. 9
“Our Year-on-Year (YoY) headline inflation forecast for the month of October is estimated to increase marginally to 18.2% and we are also forecasting a month-on-month inflation rate of 0.67%, which if annualized is 8.38%, approximately 1.92% lower than the September’s level,” FDC analysts added.
FDC’s forecast of 18.2 percent represents a 0.3 percent increase from 17.9 in September and if correct would make October’s headline inflation the highest year/year inflation level in 11 years. On the other hand, the forecast for month-on-month inflation in October would also mean inflation slowed to the lowest yet in 2016, lower than September’s 0.8 percent.
Inflation data is slated for release on November 17 by the National Bureau of Statistics (NBS).
Nigeria’s inflation in 2016 is fuelled by cost shocks brought on by dollar shortages.
