The Central Bank of Nigeria’s Monetary Policy Committee will today (Monday) begin its two-day bi-monthly meeting to review the state of the economy.
It is expected to take key policy decisions that will influence the direction of the economy.
Top on the agenda of the meeting is the need to tackle the biting recession occasioned by slow growth in the economy, rising inflation, and the volatility in the foreign exchange market.
Economic experts expect the 12-member MPC to begin an expansionary monetary policy by reducing the Monetary Policy Rate (the benchmark interest rate), and lower the Cash Reserve Ratio.
According to the economists, the MPC will need to reduce the liquidity ratio and take measures to address the lingering volatility in the foreign exchange market.
The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the MPC might have no other choice than to purse an expansionary monetary policy considering the state of the economy and the recent stimulus package announced by the fiscal authority.
He said, “We expect an accommodative monetary policy as against a contractionary one. The CBN will want to complement the effort of the fiscal authority, especially as regards the stimulus package that was recently announced.”
In an economic bulletin released on Friday, Rewane added, “The divergence between the year-on-year headline inflation and the annualised monthly rate of 6.17 per cent poses a major dilemma to the apex bank. Even though the monthly measure is more relevant to inflation expectations, it may need to maintain consistency with the previous measure.
“The clamour for a stimulus package and lower interest rates by the government and the public will force a more accommodative stance by the committee in spite of other considerations.
“The high inflation environment has reduced consumer spending, real returns and corporate profitability margins. The markets have reacted accordingly.”
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the view that the MPC would begin an accommodative monetary policy.
He said, “It is clear that we have not been able to control inflation with the tightening policy. If the overriding consideration is to reflate the economy, the MPC will need to reverse the last increase made in the MPR by reducing it from 14 to 12 per cent. The committee may need to cut the Cash Reserve Ratio from 22.5 per cent to 20 per cent and then to 15 per cent later.
A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also said he expected the committee to reduce the MPR in order to lower interest rate on bank loans and subsequently boost credit in the economy.
He said, “This is a time to begin an expansionary monetary policy. The MPC must reduce the MPR, reduce the liquidity ratio or maintain the status quo. We have seen that the inflation we are experiencing is cost-push, i.e caused by increase in cost of capital and not by demand pull. So we need to reduce the cost of capital in the economy.
“There is also a need for the committee to tell us how they intend to tackle the volatility in the exchange rate. They need to tell us whether the volatility is being caused by speculators or real demand. If it is caused by real demand, there is nothing they can do about it. However, if it is activities of speculators, then they must state how they intend to deal with it.”
The MPC had during its July meeting hiked the MPR by 200 basis points to 14 per cent.
The 14 per cent MPR announced by the CBN is the highest in over a decade.
However, the committee left the CRR and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.
The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.
Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.
In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.
Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.
The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.
The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.
The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.
According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.
He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.
The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.
Inflation Rate Increases to 16.82% in April in Nigeria
Prices of goods and services in Africa’s largest economy Nigeria rose high in the month of April, according to the latest report from the National Bureau of Statistics (NBS).
The Consumer Price Index, which measures inflation rate, grew at 16.82% rate in the month under review from 15.92% in March 2022. The inflation rate has been on a steady rise since Novermber 2021 when it drops to 15.40%.
On a month basis, inflation increased to 1.76 percent in April 2022, representing an increase of 0.02% from 1.74% recorded in March. The persistent increase in prices reflect the changes in Nigeria’s economic fundamentals. One of the key challenges impacting prices is foreign exchange scarcity.
Naira to Dollar exchange rate jumped to N600/US$1 at the parallel market popularly known as the black market despite the Central Bank of Nigeria discouraging patronage at that section of forex. However, inability to access forex at central bank designated deposit money banks forced most Nigerians to the unregulated black market.
Similarly, the drop in the nation’s external reserves due to the lower crude oil production from the year to date dragged on foreign revenue that eventually hurt central bank ability to service the economy with enough forex in an economy that imported over 90% of its consumption.
Again, rising insecurities in key food producing regions contributed to the jump in prices of food items as noted in the report. The composite food index grew at 18.37% rate in April 2022, slower than the 22.72% filed in April 2021.
According to NBS, the increase in the value of the index was due to rise in prices of Bread and cereals, Food
products n.e.c, Potatoes, yam, and other tubers, Wine, Fish, Meat, and Oils. On a monthly basis, food sub-index grew 0.01% to 2% in April from 1.99% in March.
However, the more accurate 12 month index reflect decline in food index from 19.21% filed in March 2022 to 18.88% in April 2022.
ICT Changing The Face of Nigeria’s Economy
While many thought the oil sector would save the Nigerian economy, the drift is gradually shifting away from the oil sector into the non-oil sector – the Information and Communications Technology (ICT).
A recent data revealed by the National Bureau of Statistics, sighted by Investors King, shows that the ICT has contributed 16 per cent to the growth of Nigeria’s Gross Domestic Product (GDP).
On a year-on-year basis, compared to the previous year in the same quarter, ICT contributed 14.9 per cent to the GDP – a growth of 1.3 per cent.
According to the data released by NBS, “In nominal terms, in the first quarter of 2022 the sector growth was recorded at 20.54 per cent (year-on-year), 12.68 per cent points increase from the rate of 7.86 per cent recorded in the same quarter of 2021, and 14.84 per cent points higher than the rate recorded in the preceding quarter. The Quarter-on- Quarter growth rate recorded in the first quarter of 2022 was -1.87 per cent.
“The Information and Communications sector contributed 10.55 per cent to the total Nominal GDP in the 2022 first quarter, higher than the rate of 9.91 per cent recorded in the same quarter of 2021 and higher than the 9.88 cent it contributed in the preceding quarter”.
The report added that the sector, in the first quarter of 2022, recorded a growth rate of 12.07 per cent in real terms, year-on-year.
From the rate recorded in the corresponding period of 2021, there was an increase of 5.60 per cent points. Quarter-on-Quarter, the sector exhibited a growth of -9.09 per cent in real terms.
“Therefore, of total real GDP, the sector contributed 16.20 per cent in 2022 first quarter, higher than in the same quarter of the previous year in which it represented 14.91 per cent and higher than the preceding quarter in which it represented 15.21 per cent,” the data revealed.
The Information and Communications sector in Nigeria comprises of Telecommunications and Information Services, Publishing, Motion Picture, Sound Recording and Music Production and Broadcasting.
Nigeria’s Economy Moderates in Q1 2022 as Oil Sector Contracts by 23.89%
Nigeria’s GDP moderated to 3.11% year-on-year in real terms in the first quarter (Q1) of 2022
Despite the surge in global oil prices due to the ongoing war in Ukraine, the Gross Domestic Product (GDP) of the largest exporter of the commodity in Africa, Nigeria moderated to 3.11% year-on-year in real terms in the first quarter (Q1) of 2022, the National Bureau of Statistics (NBS) stated in its latest report.
Nigeria’s GDP was 2.60% higher than the 0.51% recorded in Q1 2021 when COVID-19 disrupted business activity and dragged on economic productivity. However, this was 0.88% lower than the 3.98% filed in the fourth quarter of 2021.
On quarterly basis, the nation’s real GDP grew at -14.66% in the quarter under review when compared to the fourth quarter of 2021.
Aggregate GDP increased by 13.25% year-on-year from N40,014,482.74 million in nominal terms in the first quarter of 2021 to N45,317,823.33 million in Q1 2022. According to the NBS, “the nominal GDP growth rate in Q1 2022 was higher relative to the 12.25% growth recorded in the first quarter of 2021 and higher compared to the 13.11% growth recorded in the preceding quarter.”
Nigeria’s Oil Sector
In the first quarter, Nigeria’s crude oil production dropped to 1.49 million barrels per day (mbpd), down from 1.72mbp achieved in the same quarter of 2021. This was also lower than the 1.50mbpd recorded in the fourth quarter of 2021. Suggesting that despite the increase in global oil prices in the quarter, Nigeria’s inability to up crude oil production impeded investment in the sector and subsequently dragged on revenue generation.
As expected, the real growth of the oil sector contracted by 26.04% year-on-year in Q1 2022, representing a decline of 23.83% when compared to the same quarter of 2021. Also, growth decreased by 17.99% when compared to -8.06% filed for Q4 2021.
On a quarterly basis, the oil sector grew by 9.11% in the quarter under review. The sector contributed 6.63% to Nigeria’s total real GDP in Q1 2022, own from 9.25% contributed in the corresponding quarter of 2021 and slightly higher than the 5.19% achieved in Q4 2021.
Nigeria’s Non-Oil Sector
As usual, the non-oil sector grew by 6.08% in real terms in the first quarter. This was better than the 5.28% recorded in the first quarter of 2021 and 1.34% higher than the fourth quarter of 2021.
The report attributed the growth in the non-oil sector to the increase in activities in the following sectors; Information and Communication (Telecommunication); Trade; Financial and Insurance (Financial Institutions); Agriculture (Crop Production); and Manufacturing (Food, Beverage & Tobacco).
Nigeria’s non-oil sector contributed the most to total economic growth. The sector contributed 93.37% to the nation’s GDP in the quarter under review.
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