Concerns over policy credibility in Nigeria have surfaced over the past month. The Central Bank’s (CBN’s) new governor Godwin Emefiele recently hinted at moves towards looser monetary policy, despite the fact that inflation looks set to rise over the coming months. This adds to existing concerns that fiscal policy will be loosened ahead of next year’s national election. In light of Mr. Emefiele’s comments, we are pencilling in modest interest rate cuts before the election takes place. But the damage to credibility this would cause could lead to a further weakening of the naira and a significant rise in long-term bond yields.
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