With Declining Inflation, Analysts Want CBN to Sustain Strategies


•   As MPC begins meeting tomorrow

BY Kunle  Aderinokun

As the monetary policy committee begins its two-day meeting tomorrow, analysts have  suggested that the Central Bank of Nigeria (CBN) should sustain it’s strategies  which had ensured the consumer price index (CPI) assumed a downward trajectory for three consecutive months.

The National Bureau of Statistics (NBS) has said the CPI, which gauges inflation,  increased by 17.24 percent (year-on-year) though at a slower pace in April, translating to 0.02 percent points reduction from 17.26 per cent recorded in March. According to NBS, the decline in the headline CPI, which is occurring consecutively for three months, has exhibited effects of some easing in already high food and non-food prices, as well as favourable base effects over 2016 prices.

Analysts, who have made suggestions on the outcomes of the MPC meeting, urged the apex bank to maintain its policies and strategies with a view to sustaining the declining momentum in the CPI.   

In his estimation, , the Chief Executive Officer, The CFG Advisory Ltd, Adetilewa Adebajo,  enthused that, “We are over the worst now as high inflation rates have bottomed out at 18.72 per cent and it is moving towards a downward trajectory.”

“Howbeit, the decline is still at the bud stage and could easily be reversed. Sustained policies would be needed to maintain the momentum in the downward trend. If we can maintain this steady decline in inflation rate, the CBN would in turn, reduce MPR, thereby stimulating growth,” he however suggested.

Adebajo noted that the CBN approach at taming inflation was working but cautioned that the trend should be monitored for some time to fully ascertain the effect.

According to him, “The CBN sought to control inflation by keeping a high MPR (at 14 per cent). One can say that we are seeing the result of this in bottoming out and the successive decline in inflation for three consecutive months; however we need to monitor CPI for the next few months to fully ascertain the effects of the CBN’S approach.”

Similarly, Director, Union Capital Ltd, Egie Akpata, noted  that, the overall  inflationary trend is down and it seems “the CBN strategy of constraining Naira liquidity and flooding the market with US dollars is having a positive effect.” He believed,  “It will take a few more months of this sustained strategy before inflation is brought closer to the CBN target range.”

Generally, he pointed out, inflation was falling a lot slower than predicted, even though, “the rise in annual food inflation coupled with a few disease outbreaks affecting a number of key crops is worrying.”

“Unfortunately, the CBN strategy has resulted in extremely high risk free rates making it very difficult for liquidity and credit to flow to the private sector. If GDP growth remains negative or very weak, the CBN would have to loosen liquidity and cut rates in the next few months so as to be seen as supporting the Federal Government’s effort to reflate the economy,” Akpata submitted.

To the analysts at Eczellon Capital Ltd led by Diekola Onaolapo, if the CBN maintains its policy that brought down CPI, which also consistently decreased for three months, the economy may witness further drop in the index in the months ahead, resulting to stability and exit from recession.  

“The three months consistent decline in Consumer Price Index (CPI) after fifteen months uninterrupted upsurge in inflation rates indicates the CPI may drop slightly as prices become stable. The Monetary Policy Committee (MPC) decisions had targeted price stability in their previous meetings, and this is reflecting in the CPI numbers. If this policy is maintained in the coming months, the CPI may progressively drop further as the economy stabilizes and bounces back from recession,” they submitted.

The analysts  expressed the belief that, “The drop in the CPI gives investors insight into future rates. Fixed-income investors always analyze their investments based on the released CPI figures as it is imperative to keep current yields ahead of inflation, otherwise real wealth will fall.” Specifically, they projected that, “The Monetary Policy Committee would fix the next Monetary Policy Rate (MPR) based on the direction of the CPI. This is to ensure that the MPR is in line with the CPI. “

Besides, the analysts  were also convinced that, “The slight improvement in the CPI and the slackening inflation may not be unconnected to the CBN’s intervention in the Foreign Exchange Market.”

According to them, “You will recall that crisis in the FX environment has largely driven increase in inflation over the past months, as a reflection of the import dependence of the Nigerian economy. CBN hopes to further strengthen the Naira with its continued intervention. The sustainability of the above is however still subject to debate. The CBN initiated an Investors and Exporters FX window, as one of the mechanisms of FX market intervention. However this seems not to have had much impact on the market as Naira to the USD seems to have maintained a value over the past fortnight.”

“As we have argued in the past, monetary policies alone will not solve the overall issues in the Nigerian economy. Having said the above, even the monetary policies should be further reviewed and a more market driven approach, with reduced government intervention be explored as this would be the more sustainable approach over the long term. The CPI is still very high and more practical methods should be explored to reducing the general price level. The diversification of economy, investment in infrastructures, significant boost in agriculture and general boost of local production will ultimately be the drivers of price stability, growth and improvement in general living standards,” they concluded.

In his projection, Director, Corporate Finance, BGL Capital Ltd, Femi Ademola,  noted that, “The outlook for inflation in 2017 is an expectation of a low rate compared to 2016. This is due to the combination of high base rate, moderating exchange rate and improving liquidity to manufacturers.”

“In addition, the commencement of harvesting period will lower food prices; thus supporting the falling inflation. Inflation is likely to decline further in the coming months.”

According to him, “This is the first since the beginning of the year we are experiencing a decline in the rate of inflation in the real sense of it. This is because the Year on Year headline inflation which declined to 17.24 per cent in April from 17.26 per cent in March is measuring the rate of increase over an historical period of 12 months. However the most current measure of the rate of change in price increases is the month on month inflation which declined to 1.60 per cent from 1.72 per cent over the period. However, we are still deep in the high inflation momentum.

“This is because according to the NBS, the inflation for April was due to ncreases in prices of bread, cereals, meat, fish, potatoes, yams and other tubers, coffee, tea and cocoa, milk cheese and eggs and oils and fats. This would mean that the reported low inflation rate would have been much higher but for the high base effect over 2016 prices. It follows that the improved economic activities is helping demand especially for food which experienced an increase in inflation to 19.30 per cent in April from 18.44 per cent in March.  However, the moderating exchange rate effectively tempered the rate of increase in prices of imported food.”


FX Market 

Central Bank of Nigeria on Monday injected $457.3 million into various segments of the foreign exchange market. The spot and forwards segments garnered $267.3 million, while the wholesale segment got $100 million. CBN’s acting director, corporate communications department, Isaac Okorafor, said the Small and Medium Enterprises and invisibles segments, comprising basic travel allowance, tuition fee and medicals, got $50 million and $40 million, respectively. Naira closed at N383 to a dollar at the parallel market.



The Consumer Price Index, which measures inflation, declined by 0.02 per cent in April. According to the National Bureau of Statistics in its new report, the inflation rate, put at 17.24 per cent, declined a little further from the 17.26 per cent recorded in March. This represents the third consecutive month of a decline in the headline CPI rate, indicating some easing in high food and non-food prices.



The average price of imported rice decreased by 7.22 per cent in April, according to the National Bureau of Statistics. NBS, in its “Selected Food Price watch data for April 2017” in Abuja, noted that one kilogramme of rice was sold for N250.30 in April, from N418.71 in March. It also stated that between April 2016 and 2017, the average cost of 1kg of rice (imported high quality sold loose) increased by 29.98 per cent in the month under review. This is according to prices collected from the 774 local governments across all states and the FCT from over 10,000 respondents.



 Nigerian operator, Medview Airline, was banned from operating within the airspace of the European Commission. A statement released by the commission said 181 airlines had been banned from EU skies. “Today the European Commission updated the EU air safety list, the list of non-European airlines that do not meet international safety standards, and are therefore subject to an operating ban or operational restrictions within the European Union,” said the commission. The commission will, however, allow banned airlines to operate within the EU using leased aircraft of other airlines.


Pump Price

 Despite the challenges in the downstream oil sector, the Nigerian government said it would maintain the pump price of Premium Motor Spirit (petrol) at N145 per litre. This was contained in an address by the Minister of State for Petroleum Resources, Ibe Kachikwu. He stated that the issues of freighting and docking had been addressed last month.