Cheaper Oil, Lower Revenues & Higher Inflation - What Next ? - LBS Executive Breakfast Session

Proshare

Friday, October 04, 2014 12:03 AM / FDC

The price of oil is down to a 23-month low of $92pb and is likely to drop below $90pb. While this is 16% above the budget benchmark of $77.5pb, the headroom is much lower than the budgeted production shortfall. Therefore, the revenue effect and the consequences of a fiscal deficit are beginning to heighten the anxiety of investors and market watchers. A sharp commodity price fall is usually followed by adjustments. The question is not if but when will the adjustments kick in. The CBN is determined to defend the naira, but could be constrained by the thinning external reserves buffer.

The good news is that most of the prices of our imported commodities like sugar, wheat, rice and palm oil have declined by an average of 14%. Therefore, any currency depreciation will be inflation-neutral for manufacturers. So far the external reserves have held up in spite of the intense pressure on the naira at the interbank market.

These and other issues are the subject of the discussion at this month’s LBS Executive Breakfast session with B.J. Rewane and the FDC team.

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