Financial analysts see imminent rate cuts by the Nigerian monetary policy authorities on the continued decline of inflation for the 13th consecutive month to a 22-month low of 14.3 percent year-on-year in Feb-2018. Inflation came in at 15.1 percent in January 2018.
“Market expectations that the Central Bank of Nigeria (CBN) would eventually cut interest rates are likely to mount, as inflationary pressures in Nigeria become a thing of the past,” says Lukman Otunuga, a research analyst at FXTM.
He said the deceleration indicates encouraging signs of price stability, and that while it may be slightly premature for the CBN to take action amid the current inflation level, continual signs of consumer prices easing could provide an opportunity to act sooner than anticipated.
“A rate cut by the central bank should support the nation further, as it continues its mission to diversify by deriving economic growth from other sustainable sources,” he noted.
Equally, analysts at Afrinvest say the benign inflation picture, coupled with strengthening external sector variables (widening trade surplus, rising reserves and stable oil prices and FX rate) and fiscal strategy to reduce debt servicing cost would continue to make the case for accommodative monetary policy more compelling and place a downward pressure on short and long term market rates.
“The Central Bank entered a policy easing mode in mid-2017 when it began guiding short term rates downward in the fixed income market, without altering its main policy rate (the Monetary Policy Rate – MPR) to signal full commitment to monetary easing,” the Afrinvest analysts noted, adding that the latest monetary aggregate data shows policy environment remains tight as money supply and private sector credit both contracted month-on-month in January-2018.
“Despite downside risk of policy normalization by advanced central banks, we think the CBN will continue to guide short term markets rate downward to stimulate the private sector and support non-oil sector growth,” they posited.
