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Divergent Outlook Over inflation in Q3



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  • Divergent Outlook Over inflation in Q3

Businesses and consumers have differed in the expectations of the direction of the inflation rate in the third quarter of the year.

Meanwhile there was consensus of optimism about further naira appreciation and improved macro-economic performance in the third quarter.

These were highlights of the Business Expectations and Consumer Expectation surveys conducted by the Central Bank of Nigeria (CBN) in the just concluded second quarter.

The inflation rate has been on the downward trend since February falling from 18.72 per cent in January to 16.25 per cent in May

The CBN survey, however, revealed that while firms expect the inflation rate to moderate, consumers expect it to rise in the third quarter.

The CBN stated: “The outlook of businesses for the next quarter (Q3) however indicated greater confidence on the macro economy at 47.5 points. The drivers for this optimism were services (19.2 points), wholesale/retail trade (12.2 points, industrial (11.6 points and construction (5.3 points) sectors. Majority of the respondent firms expect the naira to appreciate in both the current and next quarters. Respondent firms expect inflation to rise in the current quarter but moderate in the next quarter.”

The apex bank also added: “The consumer outlook for the next quarter (Q3) and that of the next 12 months were however positive at 21.3 and 34.2 points respectively. The outlook could be attributed to the anticipated improvement in Nigeria’s economic conditions, expected increase in net household income, and expectations to save a bit and/or have plenty over savings in the next 12 months. Most respondents expected that borrowing rate will fall and naira will appreciate in the next 12 months, while inflation and unemployment will rise.

June PMI indicates increased economic expansion

Meanwhile, the CBN’s Purchasing Managers Index (PMI) report for the manufacturing and non-manufacturing sectors show that more sub-sectors recorded growth during the month of June 2017. The report showed that 27 out of the 34 subsectors surveyed during the month recorded growth, up from 20 subsectors that recorded growth in May. In the manufacturing sector, 12 subsectors recorded growth while four subsectors contracted. In the non-manufacturing sector, 15 subsectors recorded growth while three subsectors contracted.

The report stated: “The Manufacturing PMI stood at 52.9 index points in June 2017, indicating expansion in the manufacturing sector for the third consecutive month.

Expansion in the manufacturing sector

Twelve of the 16 sub-sectors reported growth in the review month in the following order: computer & electronic products; paper products; plastics & rubber products; primary metal; transportation equipment; petroleum & coal products; appliances & components; textile, apparel, leather & footwear; furniture & related products; electrical equipment; food, beverage & tobacco products and fabricated metal products. The remaining 4 sub-sectors declined in the order: nonmetallic mineral products; cement; chemical & pharmaceutical products and printing & related support activities.

“The composite PMI for the non-manufacturing sector grew to 54.2 in June 2017 indicating growth in Non-manufacturing PMI for the second consecutive month. Of the 18 non-manufacturing sub-sectors, 15 recorded growth in the following order: utilities; water supply, sewage & waste management; finance & insurance; educational services; repair, maintenance/ washing of motor vehicles; agriculture; health care & social assistance; information & communication; electricity, gas, steam & air conditioning supply; real estate, rental & leasing; wholesale trade; professional, scientific, & technical services; transportation & warehousing; accommodation & food services and arts, entertainment & recreation. The public administration, management of companies and construction sub sectors recorded contraction in the Non –manufacturing PMI in June 2017”.

Cost of funds to stabilise this week

Cost of funds in the interbank money market is expected to stabilise this week due to anticipation of improved system liquidity. Last week short term cost of funds fell by average of 359 basis points due to liquidity inflow of N276 billion from matured treasury bills, which cancelled out the effect of N86 billion outflow through purchase of secondary market bills on Friday. This coupled with reduction in outflow for dollar purchase caused interest rates on Collateralised Lending and Overnight lending to fall by 342 bases points and 375 basis points respectively. While interest rate on Collateralised Lending fell to 5.33 per cent on Friday from 8.75 per cent the previous week, interest rate on Overnight lending dropped to 5.75 per cent from 9.5 per cent the previous week.

Investigation showed that the market will experience N187 billion inflow from payment of matured treasury bills, which the apex bank will mop-up by selling equal amount of bills during the week. Notwithstanding, analysts were optimistic that cost of funds will be stable during the week. According to analysts at Cowry Assets Management Limited, “We expect financial system liquidity ease and resultant stability in interbank rates.

Similarly, analysts at Vetiva Capital Management Limited stated: We expect the improvement in system liquidity to continue to spur demand in the fixed income market in the coming week. Also, with the CBN signalling its intention to reduce T-bills rates (with the lower rates seen in recent OMO auctions), we see further room for increased buying activity in the T-bills market particularly.”

Naira records mixed performance

In spite of the $195 million injected into the interbank foreign exchange market and $130 million injected into the Bureau de change segment, the naira recorded mixed performance in the foreign exchange market last week.

While the naira appreciated by N1.5 in the parallel market, it depreciated by N4.28 at the Nigeria Autonomous Foreign Exchange (NAFEX) segment. While the parallel market exchange rate dropped to N366 per dollar last week from N367.5 per dollar the previous week, the NAFEX rate rose to N366.44 per dollar from N362.16 per dollar within the same period.

During the week, the CBN continued its intervention by selling $195 million in the interbank market on Wednesday. A breakdown of the intervention showed that authorized dealers in the wholesale window segment received a $100 million, while the Small and Medium Enterprises (SMEs) and invisibles windows were allocated the $50 million and $45 million, respectively. In addition to this, the CBN sold $40,000 to each of the 3,145 bureaux de change (BDCs) across the country.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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South Africa’s Inflation Rate Holds Steady in May



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South Africa’s inflation rate remained unchanged in May, increasing the likelihood that the central bank will maintain current borrowing costs.

According to a statement released by Statistics South Africa on Wednesday, consumer prices rose by 5.2% year-on-year, the same rate as in April.

The consistent inflation rate is expected to influence the decision of the six-member monetary policy committee (MPC), which is set to meet in mid-July. The current benchmark rate stands at 8.25%, a 15-year high, and has been held steady for six consecutive meetings.

Central Bank Governor Lesetja Kganyago has repeatedly emphasized the need for inflation to fall firmly within the 3% to 6% target range before considering any reduction in borrowing costs.

“We will continue to deliver on our mandate, irrespective of how our post-election politics plays out,” Kganyago stated earlier this month in Soweto. “The only impact is what kind of policies any coalition will propose. If the policies are not sustainable, we might not have investment.”

While money markets are assigning a slim chance of a 25-basis point rate cut in July, they are fully pricing in a reduction by November.

Bloomberg Africa economist Yvonne Mhango anticipates the rate-cutting cycle to begin in the fourth quarter, supported by a sharp drop in gasoline prices in June and a rally in the rand.

The rand has appreciated more than 3% since Friday, following the ANC’s agreement to a power-sharing deal with business-friendly opposition parties and the re-election of President Cyril Ramaphosa.

In May, the annual inflation rates for four of the twelve product groups remained stable, including food and non-alcoholic beverages.

However, transport, alcoholic beverages and tobacco, and recreation and culture saw higher rates. Food prices increased by 4.3% in May, slightly down from 4.4% in April, while transport costs rose by 6.3%, up from 5.7% and marking the highest rate for this category since October 2023.

The central bank’s cautious stance on monetary policy reflects its ongoing concerns about inflation.

Governor Kganyago has consistently voiced worries that the inflation rate is not decreasing as quickly as desired. The MPC’s upcoming decision will hinge on sustained inflationary pressures and the need to balance economic stability with fostering growth.

As South Africa navigates its economic challenges, the steady inflation rate in May provides a measure of predictability for policymakers and investors alike.

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Ghana Reports Strong 4.7% GDP Growth in First Quarter of 2024



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Ghana’s economy showed impressive growth in the first quarter of 2024 with the Gross Domestic Product (GDP) expanding by 4.7% compared to the same period last year, according to Government Statistician Samuel Kobina Annim.

This represents an increase from the 3.8% growth recorded in the previous quarter and should provide a much-needed boost to the ruling New Patriotic Party (NPP) as the nation approaches the presidential elections scheduled for December 7.

The positive economic data comes amidst a challenging backdrop of fiscal consolidation efforts under a $3 billion International Monetary Fund (IMF) rescue program.

The government has been working to control debt through reduced spending and restructuring nearly all of its $44 billion debt.

This includes ongoing negotiations with private creditors to reorganize $13 billion worth of bonds.

The latest GDP figures are seen as a vindication of the NPP’s economic policies, which have been under fire from the main opposition party, the National Democratic Congress (NDC).

The opposition has criticized the government’s handling of the economy, particularly its fiscal policies and the terms of the IMF program, arguing that they have imposed undue hardship on ordinary Ghanaians.

However, the 4.7% growth rate suggests that the measures taken to stabilize the economy are beginning to yield positive results.

Analysts believe that the stronger-than-expected economic performance will bolster the NPP’s position as the country gears up for the presidential elections.

“The growth we are seeing is a testament to the resilience of the Ghanaian economy and the effectiveness of the government’s policies,” Annim stated at a press briefing in Accra. “Despite the constraints imposed by the debt restructuring and IMF program, we are seeing significant progress.”

The IMF program, which is designed to restore macroeconomic stability, has necessitated tough fiscal adjustments.

These include cutting government expenditure and implementing structural reforms aimed at boosting economic efficiency and growth.

The government’s commitment to these reforms has been crucial in securing the confidence of international lenders and investors.

In addition to the IMF support, the government has also been focused on diversifying the economy, reducing its reliance on commodities, and fostering sectors such as manufacturing, services, and technology.

These efforts have contributed to the robust growth figures reported for the first quarter.

Economic growth in Ghana has been uneven in recent years, with periods of rapid expansion often followed by slowdowns.

The current administration has emphasized sustainable and inclusive growth, seeking to ensure that the benefits of economic progress are widely shared across all segments of the population.

The next few months will be critical as the government continues its efforts to stabilize the economy while preparing for the upcoming elections.

The positive GDP growth figures provide a strong foundation, but challenges remain, including managing inflation, creating jobs, and ensuring the stability of the financial sector.

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World Bank Commits Over $15 Billion to Support Nigeria’s Economic Reforms



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The World Bank has pledged over $15 billion in technical advisory and financial support to help the country achieve sustainable economic prosperity.

This commitment, announced in a feature article titled “Turning The Corner: Nigeria’s Ongoing Path of Economic Reforms,” underscores the international lender’s confidence in Nigeria’s recent bold reforms aimed at stabilizing and growing its economy.

The World Bank’s support will be channeled into key sectors such as reliable power and clean energy, girls’ education and women’s economic empowerment, climate adaptation and resilience, water and sanitation, and governance reforms.

The bank lauded Nigeria’s government for its courageous steps in implementing much-needed reforms, highlighting the unification of multiple official exchange rates, which has led to a market-determined official rate, and the phasing out of the costly gasoline subsidy.

“These reforms are crucial for Nigeria’s long-term economic health,” the World Bank stated. “The supply of foreign exchange has improved, benefiting businesses and consumers, while the gap between official and parallel market exchange rates has narrowed, enhancing transparency and curbing corrupt practices.”

The removal of the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022, was particularly noted for its potential to redirect fiscal resources toward more impactful public investments.

The World Bank pointed out that the subsidy primarily benefited wealthier consumers and fostered black market activities, rather than aiding the poor.

The bank’s article emphasized that Nigeria is at a turning point, with macro-fiscal reforms expected to channel more resources into sectors critical for improving citizens’ lives.

The World Bank’s support is designed to sustain these reforms and expand social protection for the poor and vulnerable, aiming to put the economy back on a sustainable growth path.

In addition to this substantial support, the World Bank recently approved a $2.25 billion loan to Nigeria at a one percent interest rate to finance further fiscal reforms.

This includes $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing, and $750 million for the NG Accelerating Resource Mobilization Reforms Programme-for-Results (ARMOR).

“The future can be bright, and Nigeria can rise and serve as an example for the region on how macro-fiscal and governance reforms, along with continued investments in public goods, can accelerate growth and improve the lives of its citizens,” the World Bank concluded.

With this robust backing from the World Bank, Nigeria is well-positioned to tackle its economic challenges and embark on a path to sustained prosperity and development.

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