Analysts at Financial Derivatives Company (FDC) have projected marginal decline in headline inflation year-on-year to 15.99 percent for the month of September 2017, adding that continued decline might push the CBN to maintain a contractionary monetary policy to prevent a relapse in inflation levels.
In an FDC Economic Bulletin released Wednesday seen by businessamlive , the analysts said sustained but marginal reduction can be partially attributed to the effect of tight liquidity in the system, evidenced by a contraction in money supply by 11.06 percent to N21.85 trillion in August.
“We are projecting a slight decline in year-on-year headline inflation to 15.99 percent in September. This is a 0.02 percent decrease from the previous month, making it the eight consecutive monthly decline in 2017,” they said, noting that they noticed a widespread ease in commodity prices, usually associated with early harvest.
“We also expect month-on-month inflation to decline to a one year low of 0.81 percent (10.16% annualized) from 0.97 percent (12.28% annualized) in August,” they highlighted, adding that the reduction is partially due to a slight appreciation of the naira and availability of forex in the market during the period under review.
They underpinned their projection to improvement in power supply, which increased from an average of 3,352.97MW/hr to 3,432.97MW/hr in September.
However diesel price peaked at N190/liter during the month.
They noted that inflationary pressure eased within sub-Saharan Africa (SSA), as inflation averaged 13.1 percent partly due to policy changes, increased output and a reduction in petrol prices.
Most Central Banks have held rates to prevent the risk of inflation. Like other SSA peers, Nigeria has used tight monetary policies to ensure price stability.
The MPC maintained the status quo for the seventh consecutive time. A further moderation in inflation coupled with anticipated positive growth numbers in Q3 ’17 would heighten the pressure to adopt a pro-cyclical posture in November,” they added.
“This would be through adopting a more accommodative stance; by way of a reduction in the MPR, CRR or liquidity ratios. The DMO has already moved to reduce the cost of government borrowing by reducing yields on 182 days and 364 days T-bills by 131bps and 128bps to 15.44% and 15.72% respectively.
“We believe the threat of higher inflation is looming with the commencement of the electoral cycle. This is because the incumbent government will roll out a series of people-friendly disbursements and initiatives,” they pointed out.