Budget Passage’ll Boost Liquidity, Heighten Inflationary Pressures – FDC

The Financial Derivatives Company Limited has said the passage of the 2018 budget will boost liquidity in the economy and lead to rising inflationary pressures. The N8.612Tn budget, which was proposed and presented by President Muhammadu Buhari in November last year, was planned to be passed last week but suffered setback.

The FDC, which is headed by Bismarck Rewane, a foremost economist, said, “The budget is likely to be passed in May and will thus boost liquidity and heighten inflationary pressures. “However, after 15 months of consecutive reduction in inflation, a reversal of the trend may not be farfetched at this time.”

The company projected in its latest economic bulletin that headline inflation for April will dip further to 12.7 per cent. It said, “It is likely to be the 15th consecutive monthly decline and the lowest point since March 2016. The drop is mainly attributable to the waning base year effects. Ironically, month-on-month inflation is expected to maintain its upward trend, increasing by 19 basis points to 1.03 per cent (13.09 per cent annualised) from 0.84 per cent (10.50 per cent annualised) in March.

“We also anticipate both food and core inflation (less seasonality) to move in tandem with headline inflation. This is because of the stability of the Naira, but could be undermined by the commencement of the planting season, with price increases associated with the period.” The Nation’s inflation rate dropped to 13.34 per cent in March from the 14.33 per cent recorded in February.

According to the FDC, higher liquidity and declining interest rates are expected to have had a muted impact on headline inflation. “However, the uptick in month-on-month inflation for the second consecutive month alludes to the fact that headline inflation could be moving towards an inflection point. This, coupled with the impending minimum wage review and the 10.5 per cent increase in diesel prices to N210/litre, is expected to feed into inflation level going forward,” it added.



Author avatar