FBNQuest Forecasts 10.8% Inflation In June, Seeks MPR Cut

FBNQuest Forecasts 10.8% Inflation In June, Seeks MPR Cut


Post Views: 658 FBNQuest, the wealth management and investment banking arm of FBN Holdings, on Thursday forecast that inflation rate in Nigeria would ...

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FBNQuest, the wealth management and investment banking arm of FBN Holdings, on Thursday forecast that inflation rate in Nigeria would continue its slowdown for the 17th consecutive month, rising by 10.8% in the month of June.
This would represent a drop from 11.61% as published by the National Bureau of Statistics (NBS) on Wednesday, down from 12.48% in April.
Researchers at FBNQuest had last month projected that Nigeria’s Consumer Price Index (inflation) could rise by 11.3% in May.
Also, the company expects that with the June inflation report expected ahead of July edition of the Monetary Policy Committee (MPC) meeting, it could be a good time to finally cut the benchmark Monetary Policy Rate (MPR) for the first time since around July 2016.
The call for rate cut now, FBNQuest argued, is “on the basis of the disinflation trends, for which the committee would normally take some credit, and still hope for a cut of 50bps by year-end.
“That said, the committee’s last communique barely acknowledged the steep decline in headline inflation, and concentrated on the negative impact of the late passage of the 2018 budget (still awaited) and its expansionary stance.”
The MPC rose from its second meeting this year, voting eight-to-one to retain the MPR at 14%; just as the Cash Reserve Ratio (CRR) at 22.5%; Liquidity Ratio at 30%; and Asymmetric corridor at +200 and -500 basis points around the MPR.
The majority hinged their decision on the fact that economic growth recorded so far remains largely fragile and in need of further reforms and stimulus, noted, for example, the late passage of the budget by the National Assembly, six months after it was presented by President Muhammadu Buhari, as well as expected huge spending ahead of the 2019 general elections, amidst fears that such could spike inflation.
The Presidency, on Wednesday announced that the N9.1tr 2018 Appropriation Bill will be signed next week, as against reports that it could assented on Wednesday, June 13, 2018.
According to the communique signed by Godwin Emefiele, the CBN Governor, “the predominant argument for a hold at this time is to await more clarity on the evolution of key indicators i.e. the passage and implementation of the budget, economic activities, and traction in fiscal policy in 2018.”
Members, he continued, were convinced about the need for a new impetus for increased bank lending, while working with the CBN to adopt innovative ways to increase growth of credit, “including a reduction in the policy rate when conditions for such a decision arise.
“The MPC noted that at single digit inflation and higher reserve levels, the risks associated with a policy rate reduction under conditions of wavering foreign capital inflows and an unstable oil market, including other severe uncertainties, could be better managed to deliver macroeconomic stability in Nigeria.”
Continuing, the committee also warned about the “high level of uncertainties that could arise from the fiscal operations of government in the near term. Amongst these are: when the implementation of the 2017 budget will end; dwindling revenue projections; as well as the possibilities of full implementation of the 2018 Federal budget. Consequently, we expect a likely bunching of government spending in view of the late passage of the budget and government’s commitment to honour prior obligations. This could pose a serious challenge to the CBN’s price stability mandate.
In view of the election spending, the committee believes “tightening would ensure the mop-up of excess liquidity. Mindful that despite the moderation in inflation, the current inflation rate is still above targeted single digit and that real interest rate only turned positive in the review period. The objective of the policy stance therefore, would be to accelerate a reduction in the inflation rate to single digit to promote economic stability, boost investor confidence, and promote foreign capital flows with complementary impact on exchange rate stability.”