Manufacturers Push for Accommodative Monetary Stance As Analyst Sees Inflation at 7.8% in September

Manufacturers burdened by tight monetary policy of the Central Bank of Nigeria (CBN) are hoping the apex bank will relax its stance as inflation rate slows down considerably. This is as Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited said he is optimistic inflation rate will slow further to 7.8 percent in September.
Liquidity conditions in the market were the main determinant of interest rates last month and this pushed the average Nigerian Interbank Offered Rate (NIBOR) higher. It was 18.39 percent per annum in September from 14.7percent in August and recorded a year-to-date peak of 44.98 percent in the review period.
While most businesses, manufacturers and the government would like a rate cut to help revive the dwindling economic growth, Rewane said this would risk pushing inflation higher and further weaken the naira, which recorded a year low of N163.97/$ (interbank) in the first week of September.
In our view, despite the benign outlook for inflation, events such as a delay in Federation Account Allocation Commitment (FAAC) payment will tighten liquidity in the system with a resulting increase in interest rates.
The National headline inflation rate (CPI) has been declining for the past 9 months. It is now at a 5-year low of 8.2 percent in August. This trend has spurred a call by many, especially, manufacturers for a cut in MPR of 12 percent and a change to a more accommodative monetary policy stance by the CBN. FDC is now forecasting a further decline in the national CPI to 7.8 percent in September based on the relationship between the headline inflation and the independent variable (FDC’s urban inflation).
In the month of September, we are forecasting that the national headline inflation will be 7.83 percent, the lowest point since March 2008. This continued moderation in the rate of inflation can be attributed to seasons associated with the harvest of farm produce as well as price stability of the core index in the third quarter of the year. Furthermore, the tight monetary policy stance adopted by the CBN has also helped containing inflationary pressures in 2013.
In contrast to the headline inflation forecast in September, the Lagos urban inflation edged up to 11.69 percent from 11.57 percent in August. This is mainly attributable to a 0.53 percent increase in prices of food, beverages, diesel and their distribution costs to 11.91 percent.
The index of the non-food basket declined by 0.13 percent in September to 8.67 percent as a result of lower prices of kerosene, shoes and stability in prices of other items in the basket. This was also supported by naira stability in the foreign exchange market.

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