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Analysts Say Inflation Pressure Subsists As MPC Holds

Posted: Jul 21, 2015 at 1:20 am   /   by   /   comments (0)

By Bamidele Ogunwusi,  Lagos


Financial analysts and experts have concluded that pressure on inflation will not abate in the short-to-medium term just as they expect the naira to remain under pressure at the parallel market this week.

The Monetary Policy Committee (MPC) members meet on Thursday to review developments in the global and domestic economic environment since its last meeting on May 18 and 19, 2015.

The meeting is coming against the backdrop of incessant pressure on the naira-dollar exchange rate, creeping inflation and slowing Gross Domestic Product growth rate.

The naira traded at 241.5 per dollar at the street market on Thursday, up from 235 to the dollar the previous week.

The forex markets, which closed for public holiday on Friday, remained closed on Monday.

The naira has been under persistent pressure since the CBN stopped forex sales to importers of 41 items last month.

“Dollar supply remains weak in the market, yet demand is rising daily,” one dealer at the parallel market told Reuters.

On the interbank market where the CBN exerts tight control, the naira is trading in a narrow margin. It held at 196.95 to the dollar at the interbank rate on Thursday.

Analysts at Dunn Loren Merrifield, a firm of assets managers and researchers, said in their latest report that interest rates may likely remain on hold.

“While we uphold our stance that fiscal and monetary policies should be supportive of stronger sustainable economic growth in the medium-to-long term, we maintain our view that the prevailing economic realities are not fully supportive of a reduction in policy rate at this time”, the report said.

The report further said: “Over the last two months, the domestic currency recorded a marginal appreciation of 0.03 per cent from N199.10/$1 to N199.05/$1 as at 13th July 2015 at the interbank market while the Bureau de change (BDC) segment of the market recorded a depreciation of 8.33 per cent to N240.50/$1 from N222.00 during the same period.

“The significant rise in rates at the parallel market was largely expected in view of the exclusion of importers of selected goods and services (41 items) from accessing foreign exchange at the Nigerian foreign exchange markets in a bid to ease the rapid depletion of the nation’s reserves.