Following its expectation of rebound in non-oil sector and oil sector low base push, Afrinvest (West Africa) Limited has predicted Gross Domestic Product (GDP) growth to accelerate to 2.1 per cent in 2018 from its full year estimate of 0.7 per cent for 2017.
The company stated that major downside risks to its forecast include OPEC/Non-OPEC decision on Nigeria’s production cap, development in the oil market and stability in the Niger-Delta.
Speaking to Journalists yesterday, at the press launch of its 2018 Outlook for the Nigerian Economy and Financial Market in a report titled, ‘The Virtuous Cycle… Again!’, the Group Managing Director of Afrinvest, Ike Chioke, explained that although price level growth disappointed in 2017, with Inflation rate still above MPR, the CBN began an easing cycle with the use of clearing rates at OMO auctions and frequency of auctions as policy instruments to achieve its easing objective.
“Typically, what should follow the moderation in market rates and signify the full take-off of the easing cycle is a benchmark interest rate cut. However, we believe the CBN would stick to utilizing its recently favoured OMO strategy – which is more flexible – to achieve the same easing objective without tweaking the MPR.”
He said that despite its conviction, Afrinvest do not rule out the possibility of a politically induced benchmark rate reduction in the second half of 2018, in order to make credit available to the real sector.
“If economic conditions improve further, this could potentially be done in order to score political points with the populace ahead of the 2019 election.”
Chioke pointed out that the company’s forecast was based on downside risks considerations relating to anticipated fiscal spending in the run up to the general elections and expected volatility in domestic assets market in the second half, which will pose a threat to price and exchange rate stability; expected monetary policy tightening by systemic central banks in Europe and North America which could spur capital outflows from emerging and frontier markets and constitute downside risk to domestic exchange rate stability; and benign but double-digit inflation rate which may not necessarily go below MPR but would support a hold on the rate as the CBN tries to consolidate gains on price levels.