By Obinna Chima
The aggressive monetary policy position of the Central Bank of Nigeria (CBN) since this year is essential for the rebuilding of the country’s foreign reserves.
Regional Head of Research, Africa Global Research, Standard Chartered Bank, Razia Khan, who said this, stressed that rebuilding the external reserves, given global uncertainty, should remain the key policy priority for the apex bank. He added that without this, Nigeria cannot achieve forex stability.
Nigeria’s external reserves stood at $36.916 billion on Friday. The CBN had raised the cash reserve ratio (CRR) to 12 per cent from eight per cent at its July meeting. It had also reduced the forex Net Open Position limit (NOP) from three per cent to one per cent.
The financial market analyst made the remarks in a note made available to THISDAY at the weekend, while commenting on the slight drop in Nigeria’s inflation rate in July.
The Consumer Price Index (CPI), which is used to gauge the general movement in the price of goods and services in the country, decelerated from June’s 12.9 per cent to 12.8 per cent year-on-year.
Most analysts had forecast higher inflation figures based on the new tariffs on imported food, other price pressures related to Ramadan, as well as June’s electricity tariff increase.
Khan added: “Given the naira weakness in place over the survey period (before the CBN’s most recent increase in the CRR), one might have expected even more pressure, even given relatively subdued money supply growth.
“Looking at things holistically, we do not believe that we will see a move to ease monetary policy, even following this inflation print. Inflation remains in double-digits for now, leaving little room for complacency. But monetary policy was tightened to allow for forex stability in the face of a potential worsening of second-round inflation effects. Rebuilding external reserves given global uncertainty remains the key policy priority.
“To the extent that tight monetary policy allows for the rebuilding of reserves to continue, we think it will be maintained. Nigeria may have seen a more benign July inflation print than we had expected, but global uncertainty and downside economic risks have hardly diminished,” he added.
On his part, Emerging Markets Strategist, Standard Bank Plc, Mr. Samir Gadio, said the marginal drop in inflation has the potential to trigger another rally in the bond market in the near future, following earlier gains generated by the announcement of the forthcoming inclusion of selected FGN bonds in the JP Morgan’s GBI-EM index.
“The implication is also that this year's inflation has peaked at much less elevated levels than anticipated a few months ago and will probably decelerate to around 10 per cent by year-end if this trend is sustained,” Gadio added.