Campaign spending to drive up inflation as bonds price may rise – GTCO

The Nigerian economy may witness increased yields on fixed-income securities this year as the central bank tries to reprice the assets in response to expected higher inflation rate.

This was declared by the Guaranty Trust Holding Company Plc (GTCO Plc, formerly Guaranty Trust Bank Plc), in its projections for the year, tagged “Nigeria Macro Economic and Banking Sector Themes for 2022”. 

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GTCO noted that the pressure on inflation rate would come from an expected huge spending and cash distribution that typifies campaigns and electioneering, noting this would take inflation rate to an average of 16.3 percent in the year.

Nigeria’s headline inflation dropped marginally to 15.6 percent in January from 15.63 last December, after rising for eight straight months, according to figures released by the National Bureau of Statistics last month.

The report further noted that the relatively low yield on fixed-income securities will lead to pressure on the banks to intensify credit creations to the private sector “which will in turn increase competition for quality loans amongst banks and cause funding cost to inch up slightly”.

There will be similar pressures on the banks as they scramble for deposits, occasioned by the increasing opportunities for investments outlays, it noted.

“The year could witness an intensified competition for deposits not only between banks and non-bank competitors but also with the federal government as a result of FGN Sukuk Bond issuances and possible pick up of the e-naira, effectively taking away deposits from banks,” it said.

The report warns of a possible crowding out effect as the government turns to the domestic market to borrow to fund the deficit in this year’s budget.

“At the other end of the continuum, however, the need to fund the budget deficit of N6.26 trillion would very likely see the government resort to domestic borrowing by the Debt Management Office (DMO). We might see rates trend upwards to attract flows into the market,” it said. 

The report anticipates the introduction of a cocktail of monetary policies by the Central Bank of Nigeria, CBN, to sustain the drive for inclusive growth, curb inflation and achieve exchange rate stability.