Chapel Hill Denham see CBN raise benchmark rates by 12.5% to curb rising inflation


Inflationary pressures and currency weakness could force central banks in some key African economies like Nigeria to tighten monetary policy even as the slow rollout of coronavirus vaccines and new mutations of the disease pose risks to economic growth.

Nigeria’s annual inflation rose 0.72 percentage points to 16.47% in January from a month earlier, its 17th monthly increase, the statistics office said on Tuesday, as the effect of the coronavirus pandemic weighed on the index.

Nigeria is facing its second recession in five years, triggered by a coronavirus-induced crash in oil prices that has hammered state revenue, creating large financing needs and weakening the naira.

Inflation in Nigeria, which has been in double digits since 2016, worsened with the pandemic. Food prices rose 1.01 percentage point from the previous month to 20.57% in January, the National Bureau of Statistics (NBS) said.

“This rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetables, fish and fats,” it said in a report.

We expect more African central banks will come under pressure to tighten monetary policy, due to persistent inflationary pressures,” said Ayomide Mejabi, chief economist for sub-Saharan Africa at JPMorgan Chase Bank NA.

The Central Bank of a Nigeria is expected to tighten by at least a 100 basis points in response rising inflation, he said.

What Bloomberg Economics Says…
“Nigeria face the most immediate pressure to act. The rest still have space to keep rates on hold until next year.

The risk is that they ease further on growth concerns before the hiking cycle begins”

— Boingotlo Gasealahwe, Africa economist

While Nigeria’s economy dropped into a recession for the second time in four years, surging inflation and weak liquidity in the foreign-exchange market may prompt the central bank to act soon.

A slow recovery starting in the second quarter could push the monetary policy committee to “redirect its policy goals from growth, toward its primary mandates of price and exchange-rate stability,” according to analysts with Chapel Hill Denham.

The Lagos-based investment bank sees the panel raising its benchmark rate to 12.5% from 11.5% this year.