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Party primaries, retirement of AMCON bonds raise spectre of price adjustments

By on September 22, 2014

As the Nigerian inflation rate continues its advances in July, (the sixth time in a row) analysts said at the weekend that there were increasing possibility of adjustment in exchange rates in spite of the decision of the Monetary Policy Committee at its meeting

Inflation rose to 8.5 per cent in August, some 0.2 percentage points increase from 8.3 per cent recorded in July. The latest inflationary figure came on the eve of a postponed MPC meeting which held at the weekend.

Although financial analysts are still studying the report of the MPC which shifted its meeting slated for last Monday to Thursday and Friday last week, informed analysts said the reluctance of the apex bank to tamper with the naira value could not stand the test of time when factors like the preparations for the next year elections and the retirement of AMCON’s bonds are factored in.
Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who spoke with THISDAY at the weekend said although it was safe to say that in spite of the moderate increase in the inflation rate, there was still no cause for alarm.

He noted that the increase in inflation figure from 8.3 in July to 8.5 in September notwithstanding, “the monthly comparison between July and August actually was lower. The price increase rate was slower than between August last year and this year. Obviously, one year difference is much wider than the one month difference.”

He explained that the rise in inflation figure was a reflection of the slowdown in the market within the period under review. “In any case, what is more important is that the trend is showing a particular direction. Second, because of Ebola in the end of July, the effect of it in August became manifest as some prices came down because people were not going to market. There was a slowdown in the market.”

The FDC boss said the latest inflation figure does not give any cause for alarm, warning, however, there is a cause for concern if the trend continues because of the emerging political scenario which promises to flood the system with cash. This, according to him, will be compounded with the maturity of AMCON bond this month.
He said: “There is no cause for alarm at this time but there is a cause for concern if the trend continues.

Don’t forget that election is approaching and spending is going to increase and money is going to be thrown around for primaries and all of that together with the fact that in October AMCON bonds are going to be retired and so there is going to be a much more liquidity.

“As you can see already, in spite of these, reserves are where they were, the pressure in interbank market has increased significantly in the last three to four days. It is now down to N163.5. Oil price has gone down to $97.9 per barrel, so also our oil revenue.  The federal allocation that was distributed was about N50 billion less than the previous allocations. Instead of about N700 billion, they distributed about N620 billion and that is even because they did augmentation from the excess crude account. On its own, revenues are down by 20 per cent.

“The pressure will still be on the currency and basically adjustments are almost inevitable, it is only the timing of the adjustment that one cannot be saying for now.

The Central Bank of Nigeria has to make the adjustment although it is not certain if they are going to make it before the election but because it is delayed, the adjustment will be much more significant than it would have been if they had done it early. Anytime you delay medication, you are likely to take more,” he said.

Last week, the Peoples Democratic Party (PDP) picked November 29 and December 6 for its Governorship and Presidential primaries respectively ahead of the 2015 general elections.
The party spokesman, Chief Olisa Metuh, said in Abuja that primaries for National Assembly aspirants would be conducted on November 22, while the sale of nomination and expression of interest forms for all positions has been slated for October 27 and 28.

Analysts said other parties are bound to follow suit with the attendance liquidity glut in the system as politicians try to outdo one another, relying heavily on use of cash to get nominations.
The CBN cited inflation risks, including an expected increase in government spending before 2015 elections and rising food costs, as one of the main reasons it left the benchmark interest rate unchanged in July.

The key rate will probably be held steady until after the polls, the bank Deputy Governor Kingsley Moghalu, said.
Consumer-price growth will probably average 7.5 per cent this year, World Bank economist John Litwach said in a July forecast. The country targets nine per cent as the upper limit.

 

[This Day]