Policy easing in Nigeria seen in 2018 as more MPC members now pro-credit growth – Rencap

Analysts at Renaissance Capital (Rencap) have forecast policy easing in 2018, saying the hawkish stance of the monetary authorities would be less next year as more monetary policy committee members are opting to vote to ease policy in part to spur a recovery in credit growth.

They highlighted that year-on-year credit growth has fallen to -2.9 percent in August as against 22 percent a year earlier, which according to them would compel MPC members to vote to ease policy to drive credit in the system.

In an economics research update released Friday, November 10, the analysts indicated that a policy easing cycle is loading, that the MPC is becoming less hawkish since a couple of members have voted to ease policy in the past meetings.

However, they said the risks to their view include a fall in oil prices and/or production, which undermines the naira and compels the maintenance of a tight policy stance.

They noted that most MPC members opted to hold the policy stance mainly because they want more time to see how various economic indicators – including growth, budget implementation, the FX rate and inflation – evolve.

“The MPC believes it will have more clarity on growth and inflation by Q1 2018. As we expect headline inflation to have slowed to 14 percent in Q1 2018 against 16 percent year on year in September, we think the committee may start cutting the policy rate at the March 2018 meeting, by 1 ppt.,” they said

They proffer additional arguments in favour of looser policy, which include inflation not being demand driven.

“We see non-food inflation slowing to 10-11 percent in Q1 2018; we think FX stability can be sustained in the short term. In all, we think a 2-ppt rate cut is likely in 2018. We believe this will complement the authorities’ efforts to lower interest rates on Treasury securities, by raising the foreign debt share in public debt.”

The Rencap analysts stressed that they expect inflation to be moderately lower in Nigeria in 2018.

“In Nigeria, we expect inflation to slow to an average of c. 12 percent in 2018,

vs 16.8 percent YtD, and expect a 1- to 2-ppt policy rate cut, from 14 percent.”

On the continent, they opined that inflation would be broadly stable in Kenya, Ghana, Zambia and Rwanda, adding that Ghana’s policy rate-cutting cycle will resume in November.

“In Kenya, where we see inflation remaining in the 2.5-7.5 percent target region, we expect no change to the 10 percent policy rate until there is a rate-cap review. We believe Zambia and Rwanda’s rate-cutting cycle ended in 2017, and expect no changes in 2018,” they said.

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