The monetary Policy of Committee (MPC) of the central Bank of Nigeria (CBN) is anticipated to ease in the first quarter of 2018, as it will simulate growth, according to FSDH Research.
The FSDH Research also expects inflation rate to drop to single digit in June of the same year.
Ayodele Akinwunmi, the head of research at FSDH was of the opinion that the ease in the monetary policy coupled with drop in inflation rate and stability in the foreign exchange market should continue to put a downward pressure on yields on the fixed incomes securities
The development will lead to growth in credits to the private sector, rebound in the activities in the corporate Bond Market, increase in the issuance of commercial paper and a growth in the equity market.
“We expect the average yields on the fixed income securities to drop substantially lower in 2018 than the levels attained in 2017”, Akinwunmi said at a media briefing in Lagos.
However, the major risks to the monetary policy easing include drop in the crude oil price at the international market, drop in oil production in Nigeria, monetary policy normalisation in the advanced economies, and reversal in the current trend of inflation rate.
Meanwhile, the first scheduled MPC meeting of the year for 22-23 January, 2018 was cancelled due to the Bank’s inability to form a quorum as stipulated in the CBN Act 2007.
According to Godwin Emefiele, the CBN governor, Africa’s largest economy will continue to maintain the key monetary variables as decided in the last MPC meeting of November 2017 and the Monetary Policy Rate (MPR) was retained at 14 percent; CRR at 22.5 percent; Liquidity Ratio at 30 percent and the Asymmetric Corridor at +200 and -500 basis points around the MPR.
Even if the MPC meeting did not hold, analysts do not see the possibility of a change in monetary policy direction for now, as they maintain that the Committee would likely have retained its tightening position, which it has held since September 2016 because the CBN appears to be moving in the right direction.
Although, there has been argument that the CBN should begin monetary policy tapering in order to strengthen growth prospects. Some analysts however argue that the gains accruing from lower interest rate does not often impact the economy positively in terms of credit expansion to the real economy, but usually finds its way into the foreign exchange market and cause distortions.
The research department of the FSDH expects the inflation rate to drop to a single digit in June 2018 if there is no adjustment to the PMS Price and electricity tariff. The base effect from previous year’s Consumer Price Indices and expected stability in the foreign exchange rate led to the consistent drop in the inflation rate in 2017.
The inflation rate dropped to 15.37 percent in December from 18.72 percent in January 2017. “We expect the inflation rate to average 10.62 percent in 2018 from an average of 16.55 percent in 2017.
The factors that will influence the inflation rate in 2018 are the availability of foreign exchange to meet consumption and production purposes, the expected lower interest rate environment in 2018 than in 2017, improved oil production and local substitution strategy and increased local food production.
On the other hand, the negative factors to raise inflation rates are further disruption to food production in some food producing areas in Nigeria, moderate growth in global commodities prices and possible increase in electricity tariff and Premium Motor Spirit (PMI) pump price.
The outlook of the foreign exchange market is stable as the firm believes there are more factors in favour of stability or appreciation in the value of Naira than depreciation in the value of Naira.
FSDH Research forecasts a Real Gross Domestic Product (GDP) growth rate of 3.16 percent in 2018 and 4.09 percent in 2019. However, with the population growing at 2.75 percent, the country requires growth rate in excess of 5 percent to substantially improve the wellbeing of Nigerians.
Hope Moses Ashike