Expectations ahead of Nigeria’s MPC meeting

Nigeria's economic landscape is a mix of anticipation and uncertainty as the Monetary Policy Committee meeting approaches in November. Analysts at Zedcap Partners are eyeing the potential for a rate hold or hike during the upcoming meeting. Ajibola Tobi-Osho, the Vice President of Sales and Trading at Zedcap Partners, provided insights on various key aspects of the economy in a recent interview. One of the primary areas of discussion was the foreign exchange market and the recent developments surrounding the clearance of the FX backlog. While the clearance is a positive step, the fluctuation of the Naira against the US Dollar remains a concern. The concept of supply and demand plays a crucial role here. Despite efforts to clear the backlog, the actual inflow of dollars into the economy is yet to materialize fully, leading to continued reliance on the parallel market. This imbalance in supply and demand could result in upward pressure on prices until the backlog is completely resolved. Tobi-Osho emphasized the importance of stability in the FX market, especially in the context of budget planning for 2024. Regarding the ideal pricing of the Naira, he suggested a range of 900 to 950 Naira to the Dollar, highlighting the need for consistent support to strengthen the currency. The conversation shifted towards the potential actions of the new Central Bank Governor and the Monetary Policy Committee. Tobi-Osho noted the conservative approach expected from the governor and emphasized the importance of maintaining a balance between policy adjustments and market stability. While global bodies like the ECB and IMF advocate for aggressive rate hikes to tackle inflation, Tobi-Osho advocated for a measured approach focusing on addressing the FX market's challenges. Inflation emerged as a key concern, with estimates projecting an average of 21% for the upcoming year. Taming inflation requires aligning NPR rates with market realities to attract investments in Naira and regulate currency circulation effectively. The impact of inflation on essential goods like food, particularly in urban centers like Lagos, underscores the need for robust fiscal policies to complement monetary measures. Infrastructure development is crucial to address the transportation challenges contributing to food inflation. Looking ahead, Tobi-Osho predicted a potential rise in inflation towards the end of the year, with a focus on bridging the urban-rural divide in pricing. Speculating on October's inflation figures, he suggested a maximum of 27.2%, showcasing a keen understanding of the market dynamics. The interview concluded with a forward-looking approach, highlighting the importance of monitoring developments closely in a complex economic environment marked by both challenges and opportunities.