Following the commencement of the cash-less policy of the Central Bank of Nigeria in Lagos State last month, the Managing Director of Financial Derivatives Company Limited, Mr. Bismark Rewane, has said that the policy will increase price level in the short term.

There has been debate by different analysts over the effects the cash-less policy and fuel subsidy removal will have on inflation. While some analysts have argued that inflation rate will shoot up to an average of 20 per cent in 2012, others have said the rise in inflation rate will only exist in the short term.

Rewane said in a report titled, “Fuel Subsidy Saga,” delivered at the Lagos Business School, that one of the macro-economic effects of the cash-less policy was that price level would increase in the short-run, adding that, “inflation could average 12 to 14 per cent in 2012 due to subsidy impact.”

He said, “Short-run effect is that money supply will decline by 50 per cent to N2.5tn and broad money supply (M2) will increase to N18.5tn. Velocity of circulation will increase due to transaction settlement speed. Bank float levels will reduce correspondingly.”

Rewane pointed out that some global issues would affect Nigeria, saying that, “African currencies including the naira will come under increasing pressure. The recession will reduce aid and Diaspora flows. If the CFA is delinked from the Euro what happens? Opportunity and threat for the region, but more opportunities for Nigeria.”

The FDC boss noted that global foreign direct investment inflow grew by 17 per cent in 2011 to over $1.5tn surpassing pre- crisis average. According to him, FDI to Nigeria grew by 12 per cent from $6.1bn in 2010 to $6.8bn in 2011.

On the first quarter outlook, he said expected corporate announcements from Guaranty Trust Bank Plc and Zenith Bank Plc in February should stimulate market activities, adding that over 70 per cent of the market had financial year end in December and eight of the 10 biggest companies by market capitalisation also had December financial year end.

He added, “We expect a boost in bank shares in the coming month. Uncertainty of the European Union sovereign debt crisis will continue placing pressure on developed markets.”

Speaking on the outlook for economic indicators, he said oil prices would maintain trend above $100 per barrel in February.

“The passage of the Petroleum Industry Bill will alter the dynamics of the petroleum upstream sector with relative stability in the oil producing region. Increased production and high oil prices is required to sustain export revenues. Steady accretion in money supply is also expected,” he added.

Source: Punch/Ademola Alawiye