The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meeting today is expected to retain its policy rates at current levels following the sharp increase in the inflation rate to 12.56 percent in June. Meanwhile analysts have projected further increase in the inflation rate in July citing recent naira devaluation in the official market, dollar scarcity and upward adjustment of pump price of petrol.
The National Bureau of Statistics (NBS), last weekend, released the Consumer Price Index report for June 2020 which shows that the annual inflation rate rose for the 10th consecutive month to 12.56 percent during the month, about 14 basis points from 12.4 percent in May.
Thus, the annual inflation rate has risen by 132 basis points (bpts) since it started rising from 11.24 percent in September last year. This upward trend will dominate the MPC meeting holding today in Abuja. The Committee at its last meeting in May cut the Monetary Policy Rate (MPR) by 50 bpst to 12.5 percent citing the need to support recovery of economic growth in view of the challenges posed by the COVID-19 pandemic.
Analysts however opined that the MPC will maintain the status quo at the end of its meeting today by retaining the MPR at 12.5 percent, Cash Reserve Ratio (CRR) at 27.5 percent and the Liquidity Ratio at 30 percent. The analysts also projected continued rise in the annual inflation in July and for the rest part of the year. Making this projection, analysts at Financial Derivatives Company Limited, said: “In spite of the rising inflation trend, we do not expect a change in the monetary policy stance at the MPC meeting on Monday.
We are of the view that inflationary pressures will persist with the effect of market determined petrol prices and cost reflective tariffs this quarter. Therefore, at the September meeting of the MPC, there is a very strong probability that the CBN will move towards tightening monetary policy again.”
Explaining why the upward inflation trend will continue, analysts at United Capital said: “For the month of July-2020, we expect pressure on the headline inflation rate be sustained, despite some positive developments during the month. For the Core inflation sub-index, several factors are pointing towards an increase in July-2020.
First, the upward adjustment in the premium motor spirit (PMS) retail price band for July-2020 to N140.8 per litre – N143.8 per litre from N121.5 per litre – N123.5 per litre, is likely to add pressures on local cost of production as well as a direct negative impact on consumer wallets. Second, the recent adjustment in the official rate from N361 per dollar to N381 per dollar and the continued dollar illiquidity in BDC and the Investors and Exporters window, will continue to drive up corporate cost components.”