Forex rate, inflation to be tested as FG begins budget implementation



The relatively stable foreign exchange (forex) and seemingly benign inflation rate will come under test as the Federal Government (FG) will begging to implement the 2019 budget and pay the new minimum wage, beginning with arrears of two months.

According to Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited, “naira pressure will commence as budget releases are made in July. Minimum wage and arrears of two months will be paid in July”.

In fact, the picture he paints for the month of July is gloomy. According to him, with the China/US trade off, demand for global commodities will be lowered, and that is likely to affect Nigeria’s crude oil export. It is pertinent to know that China and the US alone accounts for well over 30 per cent of crude oil consumption worldwide.

Already, the FSDH Research has since forecast that Nigeria may record the highest inflation rate figure since January 2019. That would not be good news for the economy or the purchasing power of Nigerians. Most people say they would not appreciate a situation where the prices of consumer goods increase faster than the expected increase in the approved National Minimum Wage.

With the onset of the rainy season, we have observed upward pressure on the food component of the inflation basket.

The major driver of the expected increase in the inflation rate is the increase in food prices, due to the seasonality effect typically associated with the onset of the planting season.

Security challenges in some food producing regions in Nigeria reduce the supply of food items, leading to an increase in prices. The current inflation rate is higher than the six per cent to  nine per cent  target set by the Central Bank of Nigeria (CBN).

“Given current realities, the inflation rate will remain above the CBN’s target in the short-to-medium-term” said analysts at FSDH Research.

However, Rewane sees some good news notwithstanding. According to him, the new minimum wage is likely to boost consumer disposable income and aggregate consumption by five per cent.

But he insists that the stock market will be flat to negative and average interest rates in the interbank market will increase to 12.5 per cent per annum.

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