CBN expected to raise interest rate to 18.25% next week: FDC

The Central Bank of Nigeria is expected to continue its interest rate-hike cycle next week as inflation jumped again in April, analysts at Financial Derivatives Company Limited have said. 

The Monetary Policy Committee of the CBN will meet next week for the last time under the President Muhammadu Buhari administration, which comes to an end May 29. 

The central bank raised its benchmark interest rate to 18 percent in March for the seventh straight time since May last year in a bid to tame inflation. 

Inflation quickened to 22.22 percent last month from 22.04 percent in March, data released on Monday by the National Bureau of Statistics showed. 

“This is the fourth consecutive monthly increase and the highest inflation rate in 18 years. The last time inflation spiralled to this level was in 2005 (24.3 percent). At that time the monetary policy rate (MPR) was 13%p.a. and Nigeria had just completed its debt forgiveness and rescheduling,” FDC analysts, led by economic expert Bismarck Rewane, said in a report. 

They said the sustained uptick in the general price level was mainly due to a surge in the food basket to 24.61 percent from 24.45 percent in March. 

“This is not surprising as the second quarter is typically the peak of the planting season. Some of the commodities that witnessed the highest spikes are tomatoes, yam and other tubers. The price of a basket of tomatoes jumped by 100% to 70,000 from N35,000.”

The analysts pointed out that the Nigerian food basket has consistently increased since the beginning of the year. 

“While the uptick in the first three months of the year have been largely attributed to the disruptive impact of the naira cash crunch, the increase this time is largely due to the planting season effect. Q2 is typically the peak of the planting season and the resulting impact is a reduction in food supply and ultimately higher prices,” they said.

The commodities that recorded the highest price increases were oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetable, and spirits, according to the report.

“Headline inflation is expected to continue its upward trend due to the planting season effect. This will be one of the major considerations at the MPC meeting later this month (May 22/23),” the analysts said. “The committee will most likely increase the MPR by 25 basis points, in line with global trend.”