Inflation: Analysts See 75bps Interest Rate Hike in Sept.

Inflation: Analysts See 75bps Interest Rate Hike in Sept.
CBN Governor, Mr. Godwin Emefiele

Inflation: Analysts See 75bps Interest Rate Hike in Sept.


As Nigeria’s headline inflation rate continues to rise, analysts have indicated expectations that the monetary policy committee’s fast and furious hawkish mood will persist in September.

Investment firms are projecting that the policy committee of the Central Bank of Nigeria will raise the benchmark interest rate by 75 basis points to curb the worsening inflation rate in the country.

In its macroeconomic note, analysts at PAC Capital Limited hint that they expect the monetary policy committee to be more aggressive in its pursuit to curb the rising inflationary pressure.

Afrinvest Limited capped its interest rate hike projection at 50 basis points, citing the comfort provided by a 3.5% year-on-year gross domestic product (GDP) growth reported in the second quarter of 2022.

“We are of the view that the CBN may implement further policy tightening in the next monetary policy committee meeting in continuation of its onslaught against stubborn price pressures”, the firm said.

At the monetary policy committee meeting in July, the CBN raised the benchmark interest rate by 100 basis points to 14% to stem the rising consumer price index, taking the total rate raised by the MPC this year to 250 basis points.

The inflation rate surge turns out to become a global phenomenon on the back of the energy crisis after the pandemic lockdowns but worsened further by the Russia-Ukraine war.

In August, headline inflation printed at 20.52%, according to the National Bureau of Statistics, the first time in 17 years, Nigeria’s headline inflation crossed the 20% mark. MarketForces Africa reported that CBN inflation targeting of 6-9% appears unachievable in the short to medium term.

Market analysts attribute the surge to growing pressures and other structural effects such as currency depreciation which continues to stoke the cost of imports and food supply disruption.

In its market note, Cowry Asset Management said the broad-based increases in the cost of production have all continued to play headline roles as major drivers of the uptrend.

“The continued expansion of the headline index has always given rise to sustained price pressures from food and non-food items, ensuring the uptrend”.

Analysts at Cowry Asset wrote that this resulted from the fact that insecurity in the country’s food-producing regions continues to cap production level, while challenges with logistics and FX unavailability due to low or no earnings from crude oil price rallies remain major pain points.

“The current rate of the headline index was 3.52% points higher when compared to the rate recorded in August 2021, which was 17.01% and shows that the headline inflation rate increased in the month of August 2022 when compared to the same month in the preceding year”, according to Cowry Asset.

On the contrary, analysts said the month-on-month analysis of the report puts it that August rate printed 1.77%, moderating by 0.05% from 1.82% reported in July which signals a marginal but positive deceleration.

Underpinning this spiralling inflation numbers is the food inflation index which printed 23.12% year on year from 22.02% in the prior month and 2.82% from August 2021, according to Cowry Asset.

NBS reported that these increases come from price upticks in bread and cereals, food product, potatoes, yam and other tubers, fish, meat, oil and fat, etc. which reflects the shocks to the food prices brought on by well-known structural supply-side factors.

“However, the month-on-month decline in food inflation to 1.98% from 2.04% was attributed to price moderation recorded in some food items like Tubers, garri, local rice and Vegetables.

“A look at the core inflation which printed 17.20% in August 2022 from 13.41% last year, steadied at 1.59% month on month, down 17 basis points from 1.75% in July reading.

“The reading posted that the highest increases in the core index were recorded in prices of gas, liquid fuel, solid fuel, passenger transport by road, passenger transport by Air, fuel and lubricants for personal transport equipment, cleaning, repair and hire of clothing.

“Ahead of the next MPC meeting later this month, we see a marginal rates hike by 75 basis points in a bid to rein inflation”, Cowry Asset said. Hence, analysts said they expect a slower momentum for headline inflation due to the seasonal boost to food supplies brought on by the post-harvest season, and as the MPC’s monetary tightening starts to take effect.

“Thus, we project headline inflation to hit 20.9% in September 2022”, analysts at Cowry Asset Management Limited said.

# Inflation: Analysts See 75bps Interest Rate Hike in Sept.#