Prospect Of The First Rate Cut Since 2015

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The latest meeting of the monetary policy committee (MPC) closes this afternoon in Abuja. It is the first since November due to the lack of quorum until the Senate obliged by confirming enough presidential appointments to make good the shortfall. We will have to wait to assess the thinking of the new members. That said, in our view, the discussion will (and should) be based upon the direction of inflation. The committee will doubtless welcome the decline in the headline rate, particularly the pick-up in momentum in the past three inflation reports from the NBS.

  • The CBN and the MPC used to share the outlines of in-house inflation forecasts. This practice has ceased although the governor is on record as anticipating gains in the fight against inflation, and monetary easing to match.
  • Our own forecasts have the headline rate down at around 11.0% y/y in mid-year, and closing 2018 about 12.0%. Positive base effects run through to July this year. Encouragingly, both core and food price inflation slowed y/y in the February data, and we expect a repeat in the March report.
  • There is a debate about the inflationary impact of the fx reforms of early 2017. Some importers lost access to “cheap” dollars at the preferential rate. A greater number surely had depended upon the parallel market and would have benefited from the fx available at the importers’ and exporters’ window.

Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research
  • There has not been a cut in the policy rate since November 2015. We can see the argument for 25bps this week. This would be a very guarded signal, however, given that the rate stands at 14.00%. Our hunch is a reduction of 50bps. The monetary authorities are in confident mood since the success of their exchange-rate policies has exceeded the market’s (and, we suspect, their own) expectations.
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