Nigeria inflation jumps, oil prices rise while Naira stabilizes  

Nigeria inflation jumps, oil prices rise while Naira stabilizes  
CBN Headquarters, Abuja

In the face economic instability and uncertainty, Nigeria eased lockdown restrictions this month to jumpstart growth.

The opening up of more sectors of the economy is a welcome development and may even boost consumption which accounts for a handsome chunk of gross domestic product (GDP). However, a rising number of coronavirus cases may sabotage the government’s efforts to reviving Africa’s largest economy.

It is fair to say that the outlook for Nigeria remains clouded by the coronavirus chaos with the economy expected to shrink by 3.2% according to the World Bank. But the country is not alone as other emerging market and developed nations may suffer a similar fate.

Inflationary pressures made an unwelcome return this week as the pandemic disrupted farming activities, which hit food producers and consumers.

With inflation jumping to 12.4 per cent in May, questions are being raised on whether the Central Bank of Nigeria (CBN) will have enough room to cut interest rates further. On the bright side, foreign exchange reserves seem to be on a rise and could jump back to towards the $40 billion level if Oil prices can push higher.

READ ALSO: Breaking: CBN Devalues Naira, Sells Dollar At N380/USD

Rising reserves should provide enough ammunition for the CBN to defend the Naira against external and domestic risks.

Speaking of Oil, the commodity is on route to concluding the week roughly 10 per cent higher despite the rising coronavirus cases in Beijing, parts of the United States and Japan.

OPEC has given Nigeria and three other countries till Monday 22nd of June to submit a schedule of oil production cut compensation plan.

It will be interesting to see how the country plans to compensate for the overproduction in April’s deal.

As the week slowly comes to an end and the Naira stabilizes around N453 to the Dollar on the parallel exchange, global sentiment will remain dictated by coronavirus developments and growth concerns.

By Lukman Otunuga, Senior Research Analyst at FXTM.

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