MPC Tightens to 14% P.A; Between a Rock and a Hard Place - FDC

Proshare

Thursday, July 28, 2016 8:45am/fdc

Rate hike a tactical response to:

·         Curb the persistent rise in Headline Inflation to 16.5%

·         Increase dollar inflow into the forex market

·         Reduce external reserve depletion

·         Increase national savings

·         Reduce regulatory arbitrage between banks and the CBN

 

Benefits of move

·         Will lead to short term naira appreciation

·         Naira already in the REER, 20 year fair value N315 – N320

·         Naira appreciated to N376/$ from N378/$

·         Reduce demand for dollars at the interbank

·         Reduce cost of imported raw materials and finished goods

 


Inflation in Nigeria (Supply Shocks)


 

·         Inflation resulting from supply shocks

·         May not respond to interest rate hikes

·         Rate hikes good for money supply induced inflation

 

Disadvantages – Limited policy options and hard choices

·         Higher cost of borrowing a peril to SME’s

·         Increase corporate failure and bankruptcies

·         Higher non-performing loans (NPL) 11% – 15%

·         A spike in government debt service approx. N1trn

·         No matter the decision, more pain before gain


Sub-Saharan Africa Perspective



Outlook

·         Naira will appreciate and stabilize in the interbank to N300/$ - N305/$

·         BDC rates will appreciate to N370/$

·         Gains will depend on oil production

·         Market transparency and liquidity

·         Tactical moves do not solve structural problems

·         Only consistency, time and patience will do


Related News

1.       MPC Takes a Gamble, Hikes MPR - FDC

2.      CBN Communiqué No. 108 of the MPC Meeting – July 25-26, 2016

3.      Real Estate Vacancy Factor Index (VFIX) Up to 72% in June 2016

4.      Personal Statement of Members at the 107 MPC Meeting of May 23-24, 2016

5.      Facing Policy Dilemma - MPC Considerations and Policy Options

6.      Ahead of MPC: MPC at a Crossroad …Economic Growth Vs. Price Stability

7.      A Welcome Early Start on the 2017 Budget

8.     Nigeria Half Year 2016 Outlook: Clear Picture; Dim Outlook - Cordros Capital

9.      Nigeria: Technically in Recession?

10.  Earnings from Non-oil Export Decline by 27% in April

11.   Fine-tuning of IMF growth forecasts

12.  No let-up in Inflationary Surge; Records Fifth Successive Acceleration

13.  With Inflation at 16.5%,Nigeria Stumbles into the Reform Path-LBS Executive Breakfast Session Jul'16 

Related News
SCROLL TO TOP