April 13, 2018/Cordros Report
- Nigeria records another higher-than-expected moderation in headline inflation rate in March (13.34% y/y; 0.84% m/m).
- The higher-than-expected decline in the headline consumer price index largely reflects the high base effect of March 2017.
- From all indications, the MPC is not quick to compromise the gains recorded so far, on the back of its previous decisions to hold the line on its policy rates.
- Indeed, the case for a monetary easing cycle is about when, not if.
- Our view is that the possibility of a rate cut earlier than in July (when headline inflation rate would have dropped at least 200 bps below the MPR) is slim.
- We think a 100 bps (50 bps apiece over H2) rate cut is more likely, to be augmented by implicit easing anchored on market rates in the fixed income space – as is currently the case.
- In the fixed income space, traders and investors will take a cue from the latest figures, considering particularly the fact that the reported moderation came in higher-than-expected.
- The impact of an eventual rate cut on yields will be less material, as the monetary authority has already guided rates southward over the last 6 months, and also communicated its parti pris for foreign portfolio investors.
- On the equities front, we see risk appetite strengthened by declining risk-free returns, particularly with positive corporate earnings improving valuations.
- Following the higher-than-expected moderation in February inflation, we revisit our model and revise our 2018 average inflation projection lower by 26 bps to 12.21%, from 12.47%.
- Specifically, we estimate the headline inflation rate to increase at a slower pace of 12.57% y/y (0.91% m/m) in April, supported by the relatively high base of the corresponding period of 2017.