EDC: CBN likely to leave interest rate elevated to attract dollar inflows

Nigeria's economy is at a critical juncture as analysts at EDC Securities predict a slight moderation in inflation this year while the Central Bank is expected to maintain elevated interest rates to attract dollar inflows. The report highlights concerns about volatility in the equities market, inflationary pressures, and investors' preference for higher returns. Joshua Chinga, the Sell-side Analyst and Team Lead at EDC Nigeria, discussed these insights in an exclusive interview with CNBC Africa. Let's delve into the key points raised during the interview. In terms of growth projections, the Central Bank of Nigeria estimates GDP growth at 4.1% this year, continuing the trend of steady growth observed since the second quarter of last year. However, several macroeconomic indicators, including inflation, interest rates, and exchange rate stability, pose challenges to Nigeria's economic outlook. Inflation remains a key concern, with EDC Securities setting a target of 27.5% for the year, driven by pressures in the food component. Chinga explained that the forecast is based on factors such as policies aimed at enhancing food security, the transition to CNG vehicles lowering transportation costs, and efforts to mechanize the farming sector. These measures are expected to boost food output and alleviate inflationary pressures on the economy. The discussion then shifted to the impact of the interest rate environment on small businesses. While high interest rates are crucial for foreign investor confidence and exchange rate stability, Chinga acknowledged the challenges faced by small and medium enterprises in accessing capital for growth and job creation. He emphasized the need for targeted reforms, such as the recent launch of a consumer credit company, to support these businesses. However, he cautioned that the effectiveness of such measures depends on the efficient implementation of policies. In the context of Nigeria's economic blueprint for 2025, Chinga raised concerns about the country's reliance on crude oil revenue amidst fluctuating global prices and production levels. He highlighted the need to revamp the country's refineries to reduce dependency on oil exports and mitigate budget deficits. Chinga also discussed the potential for growth in the manufacturing and industrial sectors, as well as agricultural exports, to diversify Nigeria's revenue sources. Despite challenges in non-oil exports, he pointed to the benefits of a stronger dollar exchange rate for export earnings. However, he stressed the importance of diversifying the economy beyond oil and improving export capabilities to achieve sustainable growth. In conclusion, the interview underscored the importance of addressing inflation, interest rates, and strategic economic reforms to navigate Nigeria's economic challenges and achieve the targeted growth rate of 4.1% for the year. As Nigeria works towards economic diversification and sustainable growth, policymakers and stakeholders must prioritize effective policy implementation and investment in key sectors to drive long-term prosperity.