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H1’18 inflation trend: FSDH, IMF, FDC in divergent forecast

By Babajide Komolafe

FSDH Merchant Bank has faulted projections by the International Monetary Fund (IMF) and Financial Derivatives Company Limited (FDC)  that inflation rate will reverse its 17 months declining trend and begin to rise in the second half of the year (H2’18).

The IMF in the report of its Staff Mission to Nigeria in July had projected that inflation will begin to rise in H2’18. “Inflation would pick up in the second half of 2018 as base effects dissipate and higher spending and supply constraints in agriculture put pressure on prices,” the report stated.

Managing Director/Chief Executive, FDC, Mr. Bismarck Rewane, made a similar forecast last week  while speaking at the Lagos Business School Executive Breakfast meeting, saying “August inflation will not decline, will increase towards 12 percent”.

However, FSDH Merchant Bank’s Head of Research, Ayo Akinwunmi faulted these forecasts.

Speaking at the presentation of the bank’s monthly economic and financial market outlook for August, he said: “It will take a whole lot of crises that you and I will see, even beyond this current crisis for inflation to reverse to above 12 percent this year. So the forecast that inflation will reverse because of salary increase, crisis in the middle belt and spike in food prices will not happen.

“For us at FSDH,  we have looked at inflation, the drivers of those inflations, we looked at historical trends; the inflation they are referring to is year-on-year (YoY), it is not just month-on-month (MoM)  change. If MoM change is lower this year than that of last year, the inflation number will drop. But for inflation to reverse to 14, 15, 16 percent this year, all of us we know that something drastic has happened, not salary increase.”

Meanwhile, the bank has called for fiscal measures to complement the unconventional monetary policy announced by Central Bank of Nigeria (CBN) at the July  meeting of its Monetary Policy Committee (MPC).

In its report titled, ‘Unconventional Monetary Policy Requires Complementary Fiscal Measures’, the bank said:  “The MPC of CBN maintained rates at the end of its July 2018 meeting. However, it intends to deploy unconventional strategies to boost credit creation and economic growth.

“MPC encouraged large corporations to issue Commercial Papers (CPs); CBN may buy the CPs if necessary. FSDH Research believes this measure will increase the issuance of CPs in Nigeria in H2’18. The yields on CPs may also drop or trail the yields on Nigerian Treasury Bills (NTBs)

“Similarly, CBN plans to implement measures to direct Cash Reserve Requirement (CRR) fund to the manufacturing and agriculture sectors of the Nigerian economy at 9 percent interest rate with a minimum tenor of 7 years and moratorium period of 2 years. FSDH Research believes that CBN’s proposed policy measures may increase credit creation and business expansion to stimulate growth. However, complementary fiscal measures are required to de-risk the economy.”


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