CBN may not increase interest rates amid rising inflation: Capital Economics
Concerns about a weak economic recovery may keep the Central Bank of Nigeria from increasing interest rates amid rising inflation, a London economic research company, Capital Economics, has said.
“The latest jump in Nigerian inflation, to 17.3% y/y in February is unlikely to prompt the central bank to tighten monetary policy as concerns about a weak recovery mount,” the Africa Economist at Capital Economics, Virág Fórizs, said in a note.
Markets Reporters had reported on Tuesday that the inflation rate in Nigeria surged from 16.47 percent in January to 17.33 percent in February, its highest level in four years, according to the National Bureau of Statistics.
Capital Economics said the outturn was above its estimate of 17.0 per cent year-on-year as well as the Bloomberg consensus of 17.1 per cent y/y.
It noted that food inflation surged to a record high of 21.7 percent y/y in February, from 20.5 percent y/y in January.
“Ongoing security problems, including widely publicised kidnappings, continued to disrupt the food supply chain. Meanwhile, a weaker currency and FX restrictions seem to have contributed to increased imported food inflation,” Fórizs said.
He noted that price pressures rose across the board. “Transport inflation increased from 13.5 percent y/y in January to 14.1 percent y/y last month as steps to liberalise Nigeria’s energy market somewhat allowed the recovery in global oil prices to feed through to higher fuel prices,” he said.
Housing inflation picked up to 11.9 percent y/y in February, and core inflation rose to 12.4 percent y/y, the highest since mid-2017, he noted.
Fórizs said, “The headline rate is likely to remain elevated in the coming months. Food price pressures are unlikely to unwind rapidly. And the rebound in oil prices will keep transport inflation high.
“That said, we think that inflation should start to drop back markedly in the second half of 2021.”
He said at the start of the year, policymakers at the CBN appeared optimistic that price pressures would ease.
“While the sanguine inflation view might be adjusted, we doubt that the central bank will make a hawkish turn in the face of rising inflation. Concerns about a weak economic recovery will probably keep policymakers from hiking interest rates and may even tilt the balance towards easing later this year,” Fórizs added.
