CBN poised to maintain hawkish stance amid rising inflation ~Analysts

By Oludare Mayowa

Sequel to the steep rise in Nigeria’s headline inflation in July, analysts say the Central Bank of Nigeria (CBN) may sustain its hawkish monetary policy stance in the next meeting of the country’s monetarists.

Economists and analysts at the Financial Derivative Company (FDC), headed by renowned economist Bismarck Rewane, said at the next Monetary Policy Committee (MPC) meeting, the steep increase in headline inflation will be a major decider of the direction of the interest rate.

“This steep rise in consumer price inflation will be a major consideration” at the meeting scheduled to hold on September 25 and 26, they wrote in the economic bulletin issued on Tuesday.

“The steep rise in consumer price inflation largely reflects the impact of recent policy changes on food and transport costs. Food inflation rose sharply by 1.73 percent to 26.98 percent.

The commodities that spiked the most were oil and fat, bread and cereals, fish, potatoes, yams, and other tubers, fruits, meat, vegetables, milk, cheese, and eggs.

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“Another noticeable trend is the rural-urban inflation gap, which widened to 3.34 percent from 1.01 percent in June, largely reflecting the impact of higher logistics costs on commodity prices.

“The price of diesel, a major fuel used by trucks for food distribution and logistics, surged by 18.06 percent to N850/ltr due to naira depreciation and the 7.5 percent VAT,” they stated in the report.

According to them, “Some policymakers are beginning to question the effectiveness of interest rate increases as a panacea for controlling inflation.

However, many analysts are of the view that a cocktail of policy measures, including an interest rate hike, is now imperative to rein in price inflation.

Since the policy pronouncement on May 29, the pump price of petrol has increased twice by a cumulative 233.5 percent to N617/ltr and is likely to rise further as the landing cost of the product rose by 37.4 percent to N632.17/ltr in July from N460/ltr in June.

On the outlook for inflation, the group said, “We expect inflation to rise further in August despite the harvest season.

“This will be driven by the sustained impact of higher energy costs and currency depreciation. The steep rise in consumer price inflation will be a major consideration at the MPC meeting on September 25 and 26.

“Meanwhile, some policymakers are beginning to question the effectiveness of interest rate increases as a panacea for controlling inflation,” the FDC team stated.