The Bureau of Statistics announced in its monthly Consumer Price Index for June that inflation rate year on year had increased from 12.7% in May to 12.9% in June 2012. The Bureau attributes this rise partly “to persistent increase in the prices of some farm produce such as yam tubers as well as the increase in the electricity tariff”. Lowering Inflation to single digits have been a thorny issue for regulatory authorities particularly the CBN, entailing that they hold MPR at 12% all through this year. The Bank faces a tough task in its July 23-24 Monetary Policy Committee Meeting deciding whether to hold on to the rates or increase to address the current rise in inflation. The Money Market has for weeks now continued to put enourmous pressure on borrowing cost for Government Securities driving on short term interest rates to 15%-16% thus producing a flat or humped yield curve (see below).

                                                                          Click in to expand view

For now though, nothing seems to be working and as I have said repeatedly the CBN is fighting a lost cause. There are so much leakages in the system a continued increase in benchmark MPR rate is just counterproductive. Inflation is caused by the Government itself and its reckless borrowing and spending on recurrent expenditure.




Coronation Research


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