The cost of funds is expected to rise as the country records its highest inflation rate in 11 years.
The decreasing purchasing power of the naira as presented in government’s official records released by the National Bureau of Statistics (NBS) yesterday showed that the country’s spiraling inflation hit 18.3 per cent in October, a 0.4 percentage increase from the 17.9 per cent recorded in September.
Higher prices for consumer goods and services will raise the cost of funds and undermine government’s expectations on investments.
“This will mean that investors will
require more and more money at higher interest rates from banks to put in the
same level of investment, even at higher interest rates,” according to Mr. Adi
Bongo, who teaches Economics at the Lagos Business School.
Bongo, in Lagos, yesterday told The
Guardian that interest rates would naturally adjust with inflationary trends.
He described the figures from the government’s data agency as “under-reported,”
citing ‘street prices’ of packaged water, bread and cement as pointers to the
actual percentage increases.
“A big loaf of bread that was sold for N250 in
October, now goes for N350. A keg of Cway Water was sold for N350 last month;
it now goes for N550. This represents about 60 per cent increase. Also remember
that there is time lag between data collection by the NBS and release of the
information; a lot would have also happened to these prices.”
Mr. Abiola Rasaq, an investment
analyst with the United Bank for Africa, said the high headline inflationary
environment justified the high monetary stance of the MPC in the last two
years.
“Policy tools will remain tight to
rein in inflationary pressure and stabilise the exchange rate,” he said.
Rasaq expects interest rates to
remain high for some time. “High yield on fixed-income estimate means that the
equity market will remain bearish as foreign investors remain concerned about
the liquidity of the foreign exchange market in Nigeria,” he said.
He said the highest inflation record
in 11 years notwithstanding, month-on-month percentage increase had slowed down
in the last four months, “and that is an early signal that inflation rate may
begin to moderate soon.” “The expectation is that it will begin to ease in
December,” Rasaq said, hinting that inflation figures would hit 18.5 per cent
in November.
The 11-year high record showed a
sustained increase from 9.6 per cent recorded in January. The NBS in its report
said increases were seen in all major divisions contributing to the headline
index, during the month.
Highest increases were seen in
housing, water, electricity, gas and other fuels, while communication,
restaurants and hotels recorded the slowest pace of growth in October.
There are concerns about what the
response of the Central Bank of Nigeria (CBN) to the new data would be, as the
regulator plans the very last Monetary Policy Committee meeting for the year
next week.
The apex bank had, in September,
retained its two-digit benchmark rate at 14 per cent, after an increase in July
by 300 basis points (three per cent) on the back of inflationary environment
and volatility in foreign exchange market.
Source:The Guardian
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