Saturday, December 4, 2021

    CBN Hints on Floating the Naira as September Inflation Rate Eases to 16.63%…

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    Naija247news Editorial Team
    Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

    In the just concluded week, the Central Bank of Nigeria Governor, Mr. Godwin Emefiele, at the International Monetary Fund (IMF)/World Bank annual meetings in Washington DC, stated that Nigeria spent almost 40% of its foreign earnings on the importation of petroleum products and petrochemicals.

    However, the apex bank governor was optimistic that the Dangote Refinery, which is expected to begin operations sometime in July 2022, would ease the country the pressure of the humongous foreign currency that is expended on importation.

    Also, he hinted that the Dangote project (estimated to be worth USD17.9 billion – with a total equity of USD9 billion from Dangote Group) would give the country the opportunity to float its currency against other foreign currency, especially the US dollars.

    For the CBN Governor, the benefit that would accrue to Nigeria from the eventual commencement of Dangote Refinery would not be limited to only foreign earning’s saving from significant reduction of petroleum import, but would also increase its foreign currency inflows from exportation of excess production of the petrochemicals.

    The petrochemicals plant production capacity is 900,000 tonnes of polyethylene and polypropylene granules while Nigeria’s annual consumption of these products is less than 200,000.

    Meanwhile, CBN in its drive to further ease Naira/USD demand pressure on other forex market segment – and supress the exchange rate pass through inflationary pressure – directed the Deposit Money Banks to apply the I&E rate for Pan African Payments and Settlement System (PAPSS) transactions.

    PAPSS is a centralised payment and settlement infrastructure for intra-African trade and commerce payment.

    In another development, the September inflation report by NBS showed sustained ease in headline inflation, the sixth consecutive disinflation, to 16.83% in September (from 17.01% recorded in August).

    This was chiefly driven by slower increase in food Inflation. Slower inflation rates were also registered in both urban and rural areas at 17.19% (from 17.59%) and 16.08% (from 16.43%) respectively in September; also based on moderation in food inflation.

    Against the backdrop of the harvest season coupled with sustained high-base effect, the food Index rose at a slower pace, by 19.57% in September (compared to 20.30% recorded in August) as there were weaker y-o-y increases in prices of oils & fats, bread & cereals, fish, coffee, tea & cocoa, tubers, dairy and egg.

    On the other hand, core inflation rate rose to 13.74% (from 13.41% in August) on the back of faster y-o-y rise in prices of clothing & footwear, Housing water, electricity, gas & other utilities, as well as furnishings & household equipment maintenance.

    These masked the slower y-o-y rises in in health, transportation and communication charges. Meanwhile, imported food index rose by 17.19% (as against 17.12% in August) as Naira depreciated against the greenback at the Parallel market.

    Hence, two months moving average foreign exchange rate at the Parallel market rose m-o-m by 7.83% to N556.41/USD in September 2021.

    On a month-on-month basis, amid sustained foreign exchange pressure, headline inflation rose further in September to 1.15% (from 1.02%) following a monthly rise in food inflation rate to 1.26% (from 1.06%) and a rebound in core inflation rate to 1.24% (from 0.77%).

    Cowry Research notes that the sustained rise in m-o-m inflation was partly due to sustained foreign exchange volatility; thus impacting input costs of businesses which was passed onto consumers in the form of higher selling prices.

    Hence, we feel that annual inflaition rate may rise in the coming months, especially during the festive season, although to a limited extent due to expected increase in food supply on account of the ongoing harvest season.

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