The better-than-expected 8.6 percent inflation rate in March may renew calls for monetary policy easing by the Central Bank of Nigeria (CBN), when the monetary policy committee meets next month.
According to analysts the development, despite recent decline in the oil price, signals stability in the most of the economic indicators that should give room for easing to unlock credit to the real sector of the economy.
The Nigerian March CPI decelerates to a better-than-expected 8.6% y/y, from 9.5% y/y in February, due to what observers attribute to a substantial base effect (last year, in March, core inflation accelerated to 15% y/y from 11.9% in February 2012).
Razia Khan, analyst with Standard Chartered bank, London said last night that “No doubt, the better-than-expected print – which reflects in part the overall stability in the FX rate seen in recent months – will lead to new calls for interest rate easing.
Should the improvement in inflation be sustained, then the risk of any easing is certainly higher. However, the recent decline in the oil price remains a key risk factor. With Bonny light (which trades closely to Brent) now below USD 100/bbl, investors are likely to be paying very close attention to Nigeria’s oil sensitivity. Any emergence of pressure on the FX rate might complicate the inflation outlook, and keep the CBN on hold a while longer.”
Another analyst said last night that the development portends encouraging signals for the economy and it will enhance the purchasing power of Nigerians.
In anticipation of the development, analysts at the Associated Discount House Limited,on Tuesday envisaged a moderation in inflation figures to 8.8 percent, an average estimate of the results of their regression model and weighted index which produced 8.8 percent for the former and 9 percent for the former.
The Nigerian headline inflation accelerated in February 2013 to 9.5 percent year-on-year, and that was a 50 percent increase over 9.0 percent in January of the same year. The NBS attributed
the rise in February inflation to increase in food inflation which rose to 11 percent from 9.6 percent in January 2013.
Food inflation went up in February because of the surge in farm prices caused by limited supplies as inventories accumulated in the previous harvest season were drawn down.
Commenting further, Khan said, “A second risk factor relates to the price outlook once the substantial base effect has run its course. Although current federal government spending plans envisage a modest increase in spending overall in 2013, the recently higher frequency of ECA disbursements still bears watching.
Any sign that the political risk cycle has returned to Nigeria ahead of 2015 will require additional caution from the central bank. In other words, policy shouldn’t just be about the inflation outlook in the next month or two – the outlook on a two-year horizon should arguably be more important. The case for sustained easing may not yet be that clear-cut.”
JOHN OMACHONU
