CBN to maintain hawkish stance as inflationary pressure persists

Olayemi Cardoso, the governor of the Central Bank of Nigeria(CBN) has said that the Bank would extend its monetary policy tightening stance to tame the rising inflation.

The apex bank chief stated this in the foreword of a recently published CBN’s debut outlook titled “Macroeconomic Outlook: Price Discovery for Economic Stabilisation.”

“To mitigate some of the risks and address existing imbalances, it is imperative to intensify monetary tightening to subdue inflation risk, sustain reforms to strengthen the foreign exchange market, and tackle security issues around the food-belt and oil installations,” he said.

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Some of the risks mentioned include elevated inflation, due to long-standing structural imbalances, which could extend monetary tightening and depress growth potentials.

“Oil theft, pipeline vandalism, and an unlikely decline in crude oil price could also constrain fiscal space, hamper foreign exchange receipts, lower accretion to the external reserves, heighten pressure in the foreign exchange market and undermine domestic stability,” he said.

Cardoso said the outlook for the Nigerian economy indicates broad resilience, with continued growth, expected moderation of inflation, and greater exchange rate stability.

Nigeria’s annual inflation rate ticked up to 34.19 percent in June due to rising food prices, making it the fourth-highest inflation rate ever since 1996.

This is as the month-on-month rates began to slow since February but rose in June by 0.17 percent to 2.31 percent, negating many analysts’ projections.

However, the CBN chief said inflation is projected to moderate to 21.40 percent by the end of the year within a range of 19.84 and 25.35 percent, from 28.92 percent in December 2023 putting a further rate hike in focus.

Many analysts also believe Nigeria’s headline inflation peaked in June at 34.19 percent and will begin to cool off in July to base effect and federal government tariff suspension on food importation.

Olaolu Boboye, lead economist CardinalStone Research said Inflation in July will see three major pressure points which are a hike in fuel price pressure due to scarcity, exchange rate pressure, and sustained food pressures but won’t be enough to max the benefit from base effect.

The Monetary Policy Committee (MPC) is set to hold its bimonthly meeting on July 22 and 23, where it will decide whether to hike, cut or hold rates.

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Analysts polled by BusinessDay said the monetary committee will likely increase the country’s lending rate as it aims to tame the stubbornly high inflation.

“We do not expect aggressive rate hikes like previous meetings but we project a 50-75 basis points hike next week,” Nabila Mohammed, investment analyst at ChapelHillDenham, said.

Also, analysts at Coronation Research said in their report on Monday that, “We expect a rise in the Monetary Policy Rate (currently 26.25 percent) of between 50 and 100 bps, given the rise in annual inflation from 33.95 percent in May to 34.19 percent in June.”