Analysts at Renaissance Capital (Rencap) believe Nigeria’s slowing inflation rate will not hit single digit by the end of 2018.
In a report made available to National Daily, Rencap said Nigeria’s inflation rate will close in 2018 at a sticky 11%. Based on this, they also believe the CBN will not reduce MPR when it closes it deliberates at the MPC today.
Rencap’s view of Nigeria’s inflation rate is an exception to other African countries who they believe have seen their inflation rates bottom out. “In terms of slowing inflation, Nigeria is the exception in the countries under our coverage, in that inflation has yet to bottom.”
The analysts also expect a rate cut to happen in July and when it does the CBN could cut rates to 13%. Nevertheless, they believe this won’t reduce lending rates as banks believe OMO (rate at which CBN borrows from banks) are likely to remain high in-spite of an MPR cut.
They also opine that lending rates are unlikely to fall as banks see higher treasury bills rate as a factor for keeping rates high in the near term.
“We see the policy rate being cut by 1 ppt at the July and September meetings, respectively, bringing it down to 12% at YE18. This is not likely to have a meaningful policy easing effect, as open market operations will keep yields elevated. At our 16-18 May Annual Pan Africa 1:1 Investor Conference in Lagos, the banks said lending rates are unlikely to fall on the back of rate cuts, as Treasury bill yields are of greater influence.”
They also opine banks are also not going to increase lending to the private sector in leaps as CBN maintains tight cash reserve requirement (amount banks are allowed to keep in reserve. The higher the CRR the less banks have to lend).
The report concluded that much as they celebrate a rebounding economy and lowering inflation rate, Nigerians or at least businesses are not expected to receive any benefits this year.
With lending rates expected to remain high and banks still stifled by policy induced lending caps, businesses will continue to find alternative means of sourcing capital.
“Already, we have seen an uptick in companies sourcing capital in the bond market and this is likely to persist while the CBN remains hawkish. For smaller business, an uptick in informal borrowing will also persist. Most SME now resort to borrowing from quasi finance companies, who lend at rates as high as 5% monthly,” the report stated.