Rising Inflation: Analysts Predict Tighter Monetary Policy Regime in 2021
Analysts have predicted a tighter monetary policy regime for year 2020 due to instability in average price level in Nigeria.
Supply shocks due to economic lockdown and land border policy somersault have resulted to a 15th consecutive months increase in general price level.
In a macroeconomic report, Chapel Hill Denham said with inflation rate likely to cross 16% by Q2-2021 and gross domestic product (GDP) growth turning positive, it maintained view that a tighter monetary policy regime will likely be on the card by second quarter (Q2) of year 2021.
According to data published by the National Bureau of Statistics, November inflation printed at 14.89% from 14.23% in October, 2020.
Interpreting the trend, analysts said this showed that headline inflation rate rose the fastest in four years, surging by 65bps to a 34-month high.
Notwithstanding, Chapel Hill Denham thinks the print was a positive surprise to its estimate of 15%, as the November inflation data did not include the impact of electricity tariff adjustment (+59%).
“We expect this to reflect in December inflation data due to be published in January, which should drive inflation rate substantially higher above 15%”, Chapel Hill Denham stated.
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Last week, foreign exchange rate closed flat at N379.00, N380.69 and N394.00 at the official, SMIS and I&E windows, respectively.
The average daily turnover in the I&E Window fell by 2.4% week on week to US$157.55mn, still significantly lower that than Q1-2020 level (US$350mn daily average).
In the parallel market, sell pressure on the Naira returned, with the naira shedding N2.00 (or 0.42%) to N477.00.
This was however sustained Monday as currency market traded quiet and soft.
The World Bank approved a US$1.5bn loan for Nigeria, split equally for the purpose of social transfers and basic services in response to the COVID-19 crisis, State Fiscal Transparency, Accountability and Sustainability Program for Results (SFTAS) initiative.
“We note that this loan is separate from the US$1.5 billion loan request by the federal government for budget support”, analysts at Chapel Hill Denham stated.
Nonetheless, the firm explained that the recent loan approval should provide a positive knock-on impact on Nigeria’s FX reserves, which has declined by 1.6% month to date to US$34.83 billion.
Analysts noted that apex bank published further directives on the operations of International Money Transfer Operators (IMFOs).
Based on the circular, banks are to close all naira accounts for IMTOs, permitted to operate only operating expenses accounts for IMTOs operations in Nigeria.
Also, the circular explained that lenders must ensure that proper audit of IMTO accounts is done to forestall further use of naira deposits for diaspora remittance purposes.
“This new set of directives, in our view, is on the back of the CBN’s ambition to buoy Nigeria’s FX reserves via physical receipts of foreign currency (dollar & other currencies) remittances to Nigeria”, analysts stated.
Rising Inflation: Analysts Predict Tighter Monetary Policy Regime in 2021
