The Threat Of Rising Inflation, Falling Crude Oil Prices Still A Menace

Inflation for the month of November may remain benign, but cannot be trusted to remain benevolence for too long. One, the expected increase in demand for food in December is likely to alter the course by the end of December. Two, the increased budgetary spending is also likely to impact on the trend in 2016. With income, particularly personal income not likely to improve for most workers, rising inflation will eat into their lean wallets.
Bismarck Rewane, chief executive officer of Financial Detivatives who gave some insight into inflation outlook in December, said, “we expect headline inflation to increase further in December due to increased demand for food as well as fuel scarcity, which still persists. Furthermore, we expect the increased money supply (M2) in the system due to higher liquidity, to result in demand pull inflation”.
He said, though the Central Bank of Nigeria (CBN) intends to stimulate growth with its current expansionary monetary policy strategy, there are inflationary risks associated with such a strategy. 
At a time when Nigeria is currently experiencing increasing liquidity, currency pressures and declining revenue, a countercyclical monetary policy when monetary conditions are loose runs the risk of stoking the embers of inflation, if the output growth is slower than the M2 growth.
He said, though Lagos urban inflation index decreased marginally to 12.30 percent in November, down 0.08 percent from 12.38 percent in October,
the year-on-year (YoY) food index increased to 15.09 percent from 14.23 percent, while the YoY non-food index decreased to 10.89 percent, from 11.44 percent in October. 
Rewane said the decrease in urban inflation was as a result of decrease in the non-food index despite higher food prices and transportation costs. We expect prices to increase in December due to the flurry of activities that are expected to take place during the festive season.
The CBN’s decision to cut MPR highlights its appreciation of the role of an accommodative policy stance in supporting the growth strategy. In the short term, the impact of the rate cut is expected to increase the demand for credit and thereby put pressure on the consumer price level. Average NIBOR is expected to continue trading at its current low levels of between 0.5 per cent and 1%, due to the high level of liquidity in the system.

The Budget and $38/b Benchmark

The Medium Term Expenditure Framework and Fiscal Strategy Paper forwarded to the upper chamber by President Muhammadu Buhari decided the benchmark oil price for the year 2016 as $38 per barrel.
While some of the lawmakers called for an increase in the benchmark price, others supported the decision of the Federal Government to peg the benchmark at $38 per barrel.
Not long after the decision, crude oil price in the international market became treacherous, falling too close to Nigeria’s benchmark price at $39/b. some school of thoughts believe that it is too early to fret and that crude oil prices usually oscillates and may settle for something above $40 to $50 per barrel later.
But another school of though believe that it not healthy for one to count his chicks before the eggs are hatch. They want the government to be as conservative as possible.
Commenting on the proposed $38 per barrel benchmark for the 2016 budget, Dolapo Oni, the Head of Energy Research, Ecobank Capital, reportedly said, “I think it is a fair price. The oil market is pretty volatile and reacting to the OPEC news currently.”
He believes oil price could even go lower to $38 per barrel, but added that it would recover above $40 and potentially $50.
“We have forecasted an average of $46.33 per barrel next year because we see the potential for prices above $50 as well as prices in the $20-30 range. In my opinion, therefore, I think the benchmark is satisfactory,” Oni said.
Brent, against which most of the world’s oil, including Nigeria’s is benchmarked, has fallen by more than 60 per cent in the past 18 months, putting pressure on oil-exporting countries.
The global benchmark fell below the $40-per-barrel mark on Tuesday for the first time in almost seven years.
The steep decline in oil prices had in March forced the National Assembly to settle for $53 per barrel as the benchmark price for the 2015 budget, down from $65 proposed by the Executive.
This year the Government is planning $38 benchmark price as the price was $41/barrel a week ago. But, when the OPEC meeting held on 4 December even worsened the situation.
The oil producing countries refused to cut their production resulting in furthermore decrease in the prices. Even Nigeria too disagreed to cut its crude oil production as to stand in the competition.

Borrowing To Meet Short Fall, Raises N1.2trn In Q12016

Ahead if Next year, the central bank has concluded plans to raise N1.22 trillion ($6.13 billion) from treasury bills in the first quarter of 2016, the apex bank said lastFriday.
The CBN said it would auction N245.77 billion worth of 91-day bills and N238.51 billion worth of 182-day paper between December 17 this year and March 3, 2016.
It will raise N735.54 billion worth of 364-day treasury bills in the same first quarter of next year.
The government issues treasury bills regularly as part of monetary control measures to help lenders manage their liquidity and fund government revenue shortfalls.
Yields on local denominated debt have plummeted since the central bank slashed its benchmark interest rate to 11 percent from 13 percent last month.

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