Nigeria’s headline inflation rises to 15.75% in December

Nigeria's headline inflation rose to 15.75 per cent in December 2020, marking a 0.86 percentage point increase from the rate recorded in November at 14.89 per cent. This significant uptick in inflation has prompted discussions about its potential impact on the country's economic activities and the capital markets. Dumebi Udegbunam, a Fixed Income Trader at UBA, provided valuable insights during a recent CNBC Africa interview regarding the market performance, liquidity situation, and currency outlook as influenced by the inflation data point. Market Performance and Liquidity Situation Udegbunam highlighted that the week had been eventful with NTB and OMO auctions taking place. The NTB auction rates saw an increase, with notable subscriptions across various tenors. On the other hand, the OMO auction mopped up significant NTB amounts. The market experienced moments of quietness, with a slight uptick in activity due to foreign portfolio investors adjusting their positions to manage liquidity concerns. Looking ahead, Udegbunam suggested that a substantial influx of funds is expected in the system towards the month-end, potentially influencing market sentiment positively. Currency Outlook The currency's performance was another key point of discussion, with Udegbunam forecasting a stable outlook. He mentioned that the Naira was oscillating around 390 to 3 per US dollar, a level that has been supportive of the currency's stability. Additionally, the recent uptick in crude oil prices to $4 per barrel, coupled with an anticipated increase in foreign exchange inflows, bodes well for the Naira's resilience. Udegbunam expressed confidence in the Central Bank's ability to maintain stability in the foreign exchange market, providing further reassurance about the currency's outlook. Inflation Figures and Economic Outlook The recently released inflation figures, showing a rise to 15.75 per cent in December, raised concerns about the country's inflation trajectory. Udegbunam attributed the increase partly to the festive season, which typically experiences elevated food prices. However, he remained optimistic about the future, citing government initiatives and global economic trends that could propel Nigeria towards a lower inflation rate. The Finance Ministry's projection of a decrease to 11.90 per cent by the year-end was viewed as plausible by Udegbunam, given the anticipated economic rebound and policy interventions set to stimulate growth. In conclusion, the interview shed light on the dynamics at play in Nigeria's financial markets amidst the backdrop of rising inflation. Udegbunam's insights provided a nuanced understanding of the current landscape and offered a glimpse into the potential trajectory for key economic indicators in the coming months. As stakeholders navigate through these uncertain times, a watchful eye on market developments and policy responses will be crucial to steering the country's financial resilience.