Online financial trading and investing firm, FTXM, has issued a warning that the continuous increase in Nigeria’s inflation rate and monetary policy rate poses a significant risk to the country’s fragile economy. This assessment is part of the weekly outlook prepared by Senior Market Analyst Lukman Otunuga.
While the global financial markets experienced turbulence due to growing geopolitical risks and expectations regarding the US Federal Reserve’s rate policy, Otunuga anticipates that this volatility will persist in the coming days. Investors are expected to closely monitor these key themes, as well as high-impact economic reports from various regions and other events that carry high risks.
In the Nigerian context, FTXM recognizes some positive developments following the Central Bank of Nigeria’s (CBN) recent removal of foreign exchange restrictions on 43 items. This change has led to an increase in the supply of US dollars, offering an opportunity for the Naira to strengthen. Additionally, the International Monetary Fund (IMF) has acknowledged Nigeria’s efforts to implement economic reforms.
However, the report highlights that Nigeria is still grappling with high inflation levels, and its interest rates are at their highest since the adoption of the monetary policy rate in 2006. Inflation is attributed to factors such as the removal of fuel subsidies, devaluation of the official Naira exchange rate, and security challenges in food production regions.
The report points out that inflation is expected to surge in September, which could lead the CBN to raise interest rates for the fifth consecutive time at its policy meeting scheduled for this week. This cycle of rising inflation and interest rates is seen as a considerable risk to Nigeria’s already fragile economy. The central question remains whether the central bank will implement a 25 basis points (bp) increase or opt for a more substantial rate hike to curb inflation.
FTXM’s assessment underscores the importance of addressing Nigeria’s inflationary pressures and the delicate balance the central bank must maintain to support economic stability.