Nigerian Rates Easing Still Some Way Off Even as Inflation Slows

LAGOS (capital Markets in Africa) – The slowdown in Nigeria inflation to a 20-month low may not be enough to prompt the central bank to start easing just yet. The inflation rate in Africa’s most-populous nation fell to 15.4 percent from 15.9 percent in November, the Abuja-based National Bureau of Statistics said in an emailed report Tuesday. The median estimate of seven economists in a Bloomberg survey was for the rate to remain unchanged. Prices rose 0.6 percent in the month.

The Central Bank of Nigeria is monitoring inflation closely, with a view of cutting its benchmark rate when price growth slows to about 12 percent, Governor Godwin Emefiele said last month. Policy makers have kept the rate at a record high of 14 percent since July 2016 and are scheduled to announce their decision on borrowing costs on Jan. 23.

“We don’t think central bank will cut rates yet next week, probably in the second quarter as inflation continues to fall this year,” John Ashbourne, an economist at Capital Economics Ltd. in London, said by phone. “Inflation remained high, partly because of higher fuel prices in December.”

Gasoline pump prices climbed by 18 percent month on month in December, the statistics bureau said on Monday. The bureau’s data includes unofficial rates that are above the government’s cap of 145 naira per liter. Fuel shortages caused miles-long queues at filling stations during the Christmas holiday.

Food prices rose by 19.4 percent from a year earlier, compared with a 20.3 percent increase in November, the bureau said.

What Economists say
“The December CPI reading will likely be a disappointment for those expecting the central bank to be cutting rates imminently. Bloomberg Economics have already pushed out our expectations for a rate cut from January to March or May, but the latter month now looks more likely, bar a drop in food prices in January and/or February. Transport prices will also add to inflationary pressures in coming months to keep inflation in the double digits. We still believe that the Central Bank of Nigeria has an easing bias, but inflation is not conducive for it to cut rates at the moment.” – Mark Bohlund, Bloomberg Economics.

The International Monetary Fund forecasts Nigeria’s economy will expand by 2.1 percent this year from an estimated 0.8 percent in 2017 as the production of oil, the nation’s biggest, recovers, improving the supply of dollars needed to import factory inputs and fuel. To further boost growth prospects, President Muhammadu Buhari proposed a 16 percent increase in spending to 8.6 trillion naira ($24 billion) for this year, about one third of which is for investment in roads, rail, ports and power infrastructure.

The price of oil could influence future rates decisions, according to Sewu Wusu, Lagos-based analyst at SCM Capital. The central bank will also be cognizant of the impact of lower borrowing costs on the naira.

“While we expect rates to be cut, it may not be in this first quarter, probably mid-year, when we know oil-price outlook, and if prices can be sustained,” Wusu said. “Apart from targeting inflation, there is need to attract FDI into this economy and cutting rates will not achieve that objective for” the central bank.

Source: Bloomberg Business News