The FSDH Merchant Bank Limited expects inflation rate to drop to a single digit by the second half of the year if there is no adjustment to the price of petrol and electricity tariff.
The firm stated this in its Economic and Financial Markets Outlook (2018 â€“ 2022) entitled: â€œStrong Growth Prospect with Downside Risks,â€ obtained yesterday.
It pointed out that the base effect from previous yearâ€™s Consumer Price Indices and expected stability in the foreign exchange rate led to the consistent drop in the inflation rate in 2017.
The inflation rate dropped to 15.37 per cent in December, from 18.72 per cent in January 2017.
But the Head of Research, FSDH Merchant Bank, Ayodele Akinwunmi said the firm expects inflation rate to average 10.62 per cent in 2018, from an average of 16.55 per cent in 2017.
He listed factors that would influence inflation rate in 2018 to include the availability of foreign exchange to meet consumption and production purposes; expected lower interest rate environment in 2018 than in 2017; improved oil production and local substitution strategy; and increased local food production.
However, Akinwunmi highlighted further disruption to food production in some food producing areas in Nigeria; moderate growth in global commodities price; possible increase in electricity tariff and petrol pump price, as factors that might jeopardise the single-digit inflation target.
Commenting on the external sector, he explained: â€œThe positive developments in the crude oil markets and the improved confidence in the outlook of the Nigerian economy have improved Nigeriaâ€™s external sector position. The latest data from the National Bureau of Statistics (NBS) confirms this position.
â€œThe data from the last seven quarters shows that Nigeria recorded the highest trade balance (exports higher than imports) and capital flows in third quarter 2017.â€
Nigeriaâ€™s trade balance had exceeded the N1 trillion mark for the first time since third quarter 2014 to stand at N1.22 trillion.
FSDH Research expected the following factors to influence the foreign trade performance in the short-to-medium term: improved global economic condition and outlook; FGN efforts to improve the business environment; the import substitution strategy of the federal government via growing non-oil exports; and exports of refined petroleum products from the proposed Dangote Refinery.
â€œThe major risk to the growth in the trade balance is a possible drop in the price of crude oil and production which can lead to a drop-in oil exports. Oil export accounted for over 80 per cent of the total exports in third quarter 2017.â€