Capital Economics Bullish on Nigeria’s MPC Rates Raise, Timing Difficult to Predict

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Capital Economics expects Nigeria’s MPC rates will be raised later this year, but the timing is difficult to predict, according to Ashbourne.

“Foreign currency shortages are still a serious problem, and the naira has continued to fall on the parallel market,” John Ashbourne, a London-based economist at Capital Economics Ltd., said in e-mailed responses to questions. “The widening gap between the official and the parallel rate, which is now almost as wide as it was before the 2016 devaluation, is an indication that demand is significantly outstripping supply in the official market.”

Nigeria’s high inflation rate put pressure on policy makers to keep the key rate at a record high of 14 percent for a third consecutive meeting last month.

The Monetary Policy Committee left borrowing costs unchanged even as the International Monetary Fund estimates the economy probably shrank 1.5 percent in 2016, the first full-year contraction in more than two decades, and will expand less than 1 percent in 2017.

Governor Godwin Emefiele has rejected calls from Finance Minister Kemi Adeosun to lower rates to support growth, arguing that loosening policy may worsen the inflationary situation. Emefiele has urged President Muhammadu Buhari’s administration to approve the 2017 budget and spend money to boost factory and food production, unlike last year when expenditure plans were delayed for almost five months.

“We don’t think these figures will change the monetary stance,” Michael Famoroti, an economist at Lagos-based Vetiva Capital Management, said by phone. With the focus on their core mandate of managing price growth, “we think the MPC will want to stay on its current path for a longer time,” he said.

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