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Banks react to inflation reaching record levels

13 April 2016, 21:49

Lagos – Some financial institutions have projected inflation to increase in the coming months in the wake of the shortages of foreign currency and if the fuel scarcity persists.

The negative projections follow reports from the National Bureau of Statistics indicating inflation had risen to a four-year high of 12,8 percent year-on-year in March from 11,4 percent recorded in the previous month.

The main driver of this pick up was food inflation, which accounts for the bulk of the basket, which climbed up to 12,7 percent.

The fuel scarcity was another cause, as noted by analysts.

“We continue to see further evidence of how the weakening of the parallel market currency rate is feeding into the inflation numbers,” said Rand Merchant Bank (RMB) on Wednesday.

Also read: Boko Haram, drought fuel inflation

“Moreover, the fuel shortages that have gripped the economy are acting as a drag on the economy by adding an additional layer of costs to businesses.”

First Bank of Nigeria (FBN) concurred.

“Fuel shortages were another reason for the poor inflation report,” FBN states also on Wednesday.

RMB was doubtful the Central Bank of Nigeria would succeed in lowering the inflation rate owing to the shortages of foreign currency and fuel in the official markets.

“As local businesses are increasingly turning to the parallel market for both US dollars and fuel, it seems unlikely that the inflation rate could come down to the Central Bank of Nigeria’s upper limit of 9 percent,” RMB stated.

FBN was also downbeat.

“The fx (foreign currency) shortages are set to continue in the months ahead, which points to more depressing inflation reports and, perhaps, more monetary tightening.” 





- CAJ News


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