You can probably guess that the Central Bank of Nigeria (CBN) will be under pressure to continue to hike the benchmark interest rate following reports that Nigeria’s inflation accelerated for the nine months to July 2016.
Inflation rate in the country advanced to 17.10 percent from 16.50 percent the previous month, according to a Wednesday report by the National Bureau of Statistics (NBS).
Inflationary effects have gained momentum largely due to fuel shortages and the adoption of a flexible exchange rate policy that saw the naira loss one third of its value.
With inflation accelerating “we expect at least another 100 basis points hike this year,” Raza Agha, an economist in London at VTB Capital.
The Abuja based Apex bank increased the interest rate by 200 basis points to 14 percent, as it seeks to curb inflation and attract foreign portfolio investment in a country grappling with dollar shortages.
In the Second Quarter of 2016, the nation’s Gross Domestic Product (GDP) declined by -2.06 percent (year-on-year) in real terms.
This was lower by 1.70 percentage points from the growth rate of –0.36 percent recorded in the preceding quarter, according to the statistics body.
The International Monetary Fund expects the economy to contract by 1.80 percent by the end of 2016.
Food inflation accelerated to 15.8 percent from 15.3 percent as the cost of transportation continues to feed through to the price of staples.
However, analysts are of the view that increasing borrowing costs amid a deteriorating economy is will stifle growth and hurt manufacturers and household.
“In my view the rise in inflation rate doesn’t call for a hike in interest rate because the month on month figures slowed to 1.30 percent in July from the 1.70 percent the previous period and it may fall below 1 percent by the end of the year,” said Tajudeen Ibrahim head of research, Chapel Hill Denham Limited.
“If the central bank keeps hiking rate each time inflation rises, it will damage the economy, “said Ibrahim.
Sometimes I ask myself “Does CBN really know what they are doing at all?”