Our market survey and regression point to a spike in the year-on-year headline inflation to 12.95% in April from 12.26% in March. If this is accurate, it will be the 8th consecutive monthly increase and the highest inflation since 2018. Our survey is based on the normal economic conditions. However, macroeconomic conditions in times like this are far from normal due to COVID, panic buying and fear of the unknown. It is noteworthy that the pace of increase in headline inflation, which has eased over the last 3 months, has begun its upward spike. Similar to the annual price trend, the month-on-month inflation (a more accurate measure of prices) is projected to increase sharply by 0.72% to 1.56% (annualized at 20.38%). The sharp increase was due to a number of factors including the earlier border closure, lockdown, exchange rate pass through effect and the planting season. The commodities that were mostly impacted are garri, sugar, vegetable oil and wheat flour.
The policy dilemma will increase
The confluence of rising inflationary pressures, possible economic contraction and growing external vulnerabilities will put policy makers in a dilemma. The MPC will face tough choices of lowering the MPR to cushion the negative effect of COVID-19 on real GDP growth or increasing the MPR to stem rising inflationary pressures and reduce external imbalances.
IMF rescue package: Is it enough to do the trick
The IMF has approved a $3.4bn emergency support fund for Nigeria. This is expected to shore up external reserves and support the CBN in its quest towards ensuring exchange rate stability. This is however likely to be sub-optimal as forex demand pressures mount following the lifting of restrictions in the Lagos, Ogun and Abuja.
Polaris Bank the Quintessential Comeback Kid
Polaris bank, described in a satirical piece as a recurring decimal in the Nigerian banking space, released mouth-watering numbers early this week. The bank which is a reincarnation of one of Nigeria’s premier banks, Afribank back in the day, produced a stellar performance by most parameters. It reported a top line of N150.85 billion whilst its profit before tax was an amazing N27.83 billion. The bank was able to deliver this remarkable performance because of the regulatory support of its principals and the laser focus of its dynamic management. The CBN and AMCON had provided a bailout fund and purchased its toxic assets of a level unparalleled in the industry.
In the publication, the FDC Think Tank shares its estimates for April inflation and likely policy reactions as well as its views on Polaris Bank’s earnings result.
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