While central banks across the globe are tightening monetary policy in the face of rising inflation, the Central Bank of Nigeria is likely to keep interest rates unchanged following the latest CPI report.
Consumer prices rose 15.7% in February, compared to the 15.6% in the previous month. Although this headline number remains well above the central bank’s 6% to 9% target, it is quite refreshing and points to stabilizing prices in the short term. In a perfect world, signs of moderating inflation would have boosted sentiment towards Africa’s largest economy and reduced pressure on the CBN to act. However, external and domestic risks are likely to rekindle inflationary pressures – threatening Nigeria’s economic recovery.
It is worth keeping in mind that the shockwaves from the geopolitical risks will be felt in Nigeria. Sanctions on Russia have caused commodity prices to soar. Given how Nigeria imports sunflower oil, crude, and other key commodities – this may translate to rising inflationary pressures. Domestically, pre-election spending ahead of the general elections next year could fuel higher prices. In the meantime, the CBN will make policy adjustments once the economy’s recovery is on a sustainable path. Nigeria’s gross domestic product (GDP) grew 3.4 per cent in 2021, the strongest since 2014.
All in all, we expect the economy to remain exposed to external risks in the form of geopolitical tensions, rising Covid-19 cases in China, volatile oil prices and rising global inflation.
By Lukman Otunuga, Senior Research Analyst at FXTM