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Single-digit inflation outlook to boost fixed income investments

By on April 19, 2014

The single-digit inflation outlook in the country will generate further interest in Nigeria’s fixed income securities from both domestic and foreign investors, a report has stated.

FSDH Merchant Bank Limited which stated this in its latest monthly and economic report however warned that external or internal shocks could derail the single-digit inflation.
Nigeria’s year-on-year Consumer Price Index (CPI) which measures inflation rose slightly to 7.8 percent in March compared to 7.7 per cent the previous month, according to latest figures announced by the National Bureau of Statistics (NBS) on Tuesday.

The NBS attributed the change to higher prices of bread, cereals, fish, dairy, oils and fats as well as fruits.

“The average inflation rate in 2014 is expected to be in single digit due to the expectations of good harvest in Nigeria, as well as generally favourable prices of food in the international market.

“However, we reiterate that external or internal shock could derail the single-digit inflation rate expectations,” the report added.

The report also noted that the Central Bank of Nigeria’s (CBN’s) unflinching commitment to defend the value of the naira in the face of the heightened demand at the foreign exchange market had led to the attrition of the external reserves.

The external reserves stood at US$37.913 billion as at April 15.

The external reserves movement showed had declined consistently from $45.23 billion on October 31, 2013 to $44.51 billion on December 02, 2013 and grew to $44.66 billion on December 05, 2013 after which it consistently declined.

“The level of reserves is enough to cover about six months of imports. FSDH Research opines that the biggest threats to the accretion in the external reserves position remain the possibility of a further tapering in the United States, the shortfall in the oil output and the volatility related to Foreign Portfolio Investment (FPI) in the Nigerian financial market,” the report added.

The Monetary Policy Committee (MPC) of the CBN had at its last meeting announced an increase in the cash reserve requirement on private sector deposits from 12 per cent to 15 per cent in order to manage liquidity in the system.

 

 

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