As MPC meets today, report predicts naira devaluation

A report by Financial Derivatives Company Limited, a Nigeria-based economic research and financial advisory firm predicts that as the Central Bank of Nigeria’s Monetary Policy Committee, which commences its two-day meeting on Monday (today) at the CBN head office in Abuja, the naira may be devalue by N5.

The FDC, in the economic bulletin, said the predicted reduction in price level was partly due to the post-festivities drop in purchasing power of consumers.

The report read, “It is surprising that even after the redemption of the Asset Management Corporation of Nigeria bonds of N1trn in December, the transmission effect on prices is relatively mute. Both the food and non-food basket prices are expected to slide.

The research firm said its urban inflation survey in February showed that urban inflation moderated by 0.94 per cent to 8.63 per cent.

It adds, “This shows that the movement in inflation was influenced mainly by seasonality rather than cost-push or demand pull effects. The threat to price stability is still very potent, especially in view of the potential for exchange rate transmission on imported finished goods. Other risks from the 50 per cent hike in gas prices for power generation and the implementation of the new automotive policy remain.

The Chief Executive Officer, FDC, Mr. Bismarck Rewane, said the MPC would be more anticipatory in its deliberations under a care-taker leadership under Mrs. Sarah Alade.

He said, “The MPC will be more anticipatory and strategic in its deliberations under a care-taker leadership. We expect the MPC to be very aggressive in its mopping up and push the CRR to the maximum level. This will be complemented by tweaking the private sector CRR from 12 to 15 per cent. The allowable band for naira trading may be shifted from the current $(N150—160) to a $(N155—165). In effect a N5 crawling peg to the downside (naira depreciation). All other markets will react in line with their interest rate sensitivity or convexity. Most bond traders and other fixed income securities holders have already priced in an interest rate increase into their sentiments and portfolios.”

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