Steve Osho, Co-Founder of Comercio Partners Limited, an investment bank, has cautioned against further hikes in the Monetary Policy Rate (MPR), stating that such a move would hinder economic growth. In a report by the company reviewing the ongoing upward trend in the inflation rate to 33.95% in May, Osho noted that the recent 750 basis point hike in the MPR has begun to yield positive effects, as evidenced by the Month-on-Month (MoM) reduction in inflation.
According to the National Bureau of Statistics (NBS), MoM inflation decreased for the third consecutive month to 2.14% in May. Although food inflation increased to 40.53% in May, the rate of increase dropped for the third consecutive month to 0.52 percentage points.
While acknowledging that the inflation trend in May was in line with expectations, with ongoing reforms by the government and anticipated actions by the Central Bank of Nigeria (CBN) expected to have a dampening effect on the rate of increase, Osho emphasized that the persistently high food inflation indicates that structural issues such as transport subsidies, insecurity, and supply chain disruptions still need to be addressed.
Osho stated that while the upward inflationary trend is expected to continue, he believes the CBN is likely to maintain the MPR at the current level of 24.75%.
He explained, “At Comercio, we believe that the Monetary Policy Committee (MPC) is likely to maintain the current MPR in the upcoming meeting. Further tightening could be detrimental to economic growth, as businesses need access to funds to expand and operate efficiently. Despite some stability in the exchange rate, the market remains volatile and uncertain. The fixed income market has benefited from the recent rate hikes, but it is prudent to allow these measures more time to impact the economy before considering additional increases.”
Regarding steps investors can take to navigate the high inflationary regime, Osho suggested, “In the face of persistent high inflation, investors should adopt a cautious yet strategic approach. Diversifying portfolios to include investing in sectors that traditionally perform well during inflationary periods, such as commodities and real estate, is crucial. It’s also important to stay informed about policy changes and market conditions to make timely and informed investment decisions. Active management and focusing on long-term value will be key strategies in navigating this high-inflation environment.”
