A Senior Research Analyst at FXTM, Lukman Otunuga has said that the drop in inflation rate offers Central Bank of Nigeria more room to leave interest rates unchanged for the time being in an effort to stimulate economic growth.
The National Bureau of Statistics (NBS) said inflation dropped by 0.37 per cent to 17.38 per cent in July, from 17.75 per cent recorded in June.
According to him, the drop in inflation rate is an encouraging development, stressing that inflation in Africa’s largest economy fell for the fourth consecutive month in July.
He said: “While other major countries across the world are grappling with rising inflationary pressures, Nigeria seems to be experiencing a period of cooling prices.
“This is a welcome development for the Central Bank of Nigeria and offers more room to leave interest rates unchanged for the time being in an effort to stimulate economic growth.
“We wrote yesterday about how the FOMC Minutes would offer clues on when the bank might start tapering its bond purchases.
“Well, officials confirmed that inflation was now comfortably above their average two per cent target and one or two more strong job reports will now be required for “substantial progress” to be made in the economy.
“The Fed is still split on timing, but most members judged tapering could start this year. The minutes do not seem to set up a taper as early as next month.
“But the timetable is well within the consensus on Wall Street. This means with the bumper July payrolls already working their magic (and notably after these minutes), a solid August report could see a taper pathway announced at the September meeting.
“Markets reacted quite modestly to the minutes initially. But this morning, dollar bulls are emboldened and have pushed to new long-term highs.
“The DXY breached the March top at 93.43 so a strong weekly close is probably needed to really rubber stamp the next leg higher for the greenback.
“Bulls will aim for last year’s November peak at 94.28, while long-term buyers may have the September high at 94.74. in their sights.
“Commodities and oil have come under more pressure this morning with Brent off nearly 1% today and below $67. The spread of the Delta variant is clouding the demand picture. Output data from China also showed the least crude is being processed by Chinese refiners in 14 months.
“No doubt OPEC+ will be keeping their eye on prices and the demand side. The group recently left its forecasts unchanged and any rollback in the easing of production cuts could spark ire from the US.
“Regarding technicals, May lows look like next major support at $64.60 with the 200-day moving average just below $64.”