Following a drop in the January inflation rate to a single digit of nine per cent, financial analysts have said the February inflation rate will inch up marginally to 9.1 per cent.

The National Bureau of Statistics has not released the official figure for February yet.

But analysts at Financial Derivative Company Limited, in a report on Monday, said the consumer price index would have increased by 0.42 per cent to 142.5 points in February.

The Monetary Policy Committee will meet later this month to determine what monetary policy action to employ in a benign inflation environment.

“The CBN has its work cut out for it in aligning its mandate for price stability and the public outcry for a cut in interest rates. The clarion call is for the CBN to adopt an accommodative stance,” the report added.

On exchange rate, the analysts said there was a disconnect between policy rates and money market rates, as the market rates declined by 200 basis points prior to the inflation report.

The report said, “Due to the benign inflationary outlook, we expect the average Nigerian Inter-Bank Offered Rates to decline further in March. This points to the fact that as inflation continues to decline, the market has come to realise that the CBN has limited options on its current conservative stance.

“Therefore, a rate cut in March will only formalise market anticipation.”

The analysts, however, said the naira might depreciate marginally due to lower interest rates, leading to a reduction in foreign investors’ appetite for government debt instruments and capital flight.

“With the high external reserves level (currently at $47.3bn), the CBN’s willingness and ability to support the naira could increase in the near term. The strength and direction of the naira against foreign currencies is critical to importers of raw materials, as a weak currency will increase the cost of imported goods and may erode manufacturers’ profits,” they said.

Data released by the NBS last Monday showed the inflation rate fell to nine per cent in January, from 12 per cent in December last year.

It also showed a decline in the food price sub-index, which fell to 10.1 per cent, from 10.2 per cent in the period under review.

Source: Punch (By Ademola Alawiye)