Economy

Divergent Outlook Over inflation in Q3

Published

7 years ago

July 3, 2017

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.

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Samed Olukoya

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

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Economy

Federal Government Set to Seal $3.8bn Brass Methanol Project Deal in May 2024

Published

7 days ago

April 18, 2024

Samed Olukoya

The Federal Government of Nigeria is on the brink of achieving a significant milestone as it prepares to finalize the Gas Supply and Purchase Agreement (GSPA) for the $3.8 billion Brass Methanol Project.

The agreement to be signed in May 2024 marks a pivotal step in the country’s journey toward industrialization and self-sufficiency in methanol production.

The Brass Methanol Project, located in Bayelsa State, is a flagship industrial endeavor aimed at harnessing Nigeria’s abundant natural gas resources to produce methanol, a vital chemical used in various industrial processes.

With Nigeria currently reliant on imported methanol, this project holds immense promise for reducing dependency on foreign supplies and stimulating economic growth.

Upon completion, the Brass Methanol Project is expected to have a daily production capacity of 10,000 tonnes of methanol, positioning Nigeria as a major player in the global methanol market.

Furthermore, the project is projected to create up to 15,000 jobs during its construction phase, providing a significant boost to employment opportunities in the country.

The successful execution of the GSPA is essential to ensuring uninterrupted gas supply to the Brass Methanol Project.

Key stakeholders, including the Nigerian National Petroleum Company Limited and the Nigerian Content Development & Monitoring Board, are working closely to finalize the agreement and pave the way for the project’s advancement.

Speaking on the significance of the project, Minister of State Petroleum Resources (Gas), Ekperikpe Ekpo, emphasized President Bola Tinubu’s keen interest in expediting the Brass Methanol Project.

Ekpo reaffirmed the government’s commitment to facilitating the project’s success and harnessing its potential to attract foreign direct investment and drive economic development.

The Brass Methanol Project represents a major stride toward achieving Nigeria’s industrialization goals and unlocking the full potential of its natural resources.

As the country prepares to seal the deal in May 2024, anticipation grows for the transformative impact that this landmark project will have on Nigeria’s economy and industrial landscape.

Economy

IMF Report: Nigeria’s Inflation to Dip to 26.3% in 2024, Growth Expected at 3.3%

Published

1 week ago

April 17, 2024

Samed Olukoya

Nigeria’s economic outlook for 2024 appears cautiously optimistic with projections indicating a potential decrease in the country’s inflation rate alongside moderate economic growth.

The IMF’s revised Global Economic Outlook for 2024 highlights key forecasts for Nigeria’s economic landscape and gave insights into both inflationary trends and GDP expansion.

According to the IMF report, Nigeria’s inflation rate is projected to decline to 26.3% by the end of 2024.

This projection aligns with expectations of a gradual easing of inflationary pressures within the country, although challenges such as fuel subsidy removal and exchange rate fluctuations continue to pose significant hurdles to price stability.

In tandem with the inflation forecast, the IMF also predicts a modest economic growth rate of 3.3% for Nigeria in 2024.

This growth projection reflects a cautious optimism regarding the country’s economic recovery and resilience in the face of various internal and external challenges.

Despite the ongoing efforts to stabilize the foreign exchange market and address macroeconomic imbalances, the IMF underscores the need for continued policy reforms and prudent fiscal management to sustain growth momentum.

The IMF report provides valuable insights into Nigeria’s economic trajectory, offering policymakers, investors, and stakeholders a comprehensive understanding of the country’s macroeconomic dynamics.

While the projected decline in inflation and modest growth outlook offer reasons for cautious optimism, it remains essential for Nigerian authorities to remain vigilant and proactive in addressing underlying structural vulnerabilities and promoting inclusive economic development.

As the country navigates through a challenging economic landscape, concerted efforts towards policy coordination, investment promotion, and structural reforms will be crucial in unlocking Nigeria’s full growth potential and fostering long-term prosperity.

Economy

South Africa’s March Inflation Hits Two-Month Low Amid Economic Uncertainty

Published

1 week ago

April 17, 2024

Samed Olukoya

South Africa’s inflation rate declined to a two-month low, according to data released by Statistics South Africa.

Consumer prices rose by 5.3% year-on-year, down from 5.6% in February. While this decline may initially suggest a positive trend, analysts caution against premature optimism due to various economic factors at play.

The weakening of the South African rand against the dollar, coupled with drought conditions affecting staple crops like white corn and geopolitical tensions in the Middle East leading to rising oil prices, poses significant challenges.

These factors are expected to keep inflation relatively high and stubborn in the coming months, making policymakers hesitant to adjust borrowing costs.

Lesetja Kganyago, Governor of the South African Reserve Bank, reiterated the bank’s cautious stance on inflation pressures.

Despite the recent easing, inflation has consistently remained above the midpoint of the central bank’s target range of 3-6% since May 2021. Consequently, the bank has maintained the benchmark interest rate at 8.25% for nearly a year, aiming to anchor inflation expectations.

While some traders speculate on potential interest rate hikes, forward-rate agreements indicate a low likelihood of such a move at the upcoming monetary policy committee meeting.

The yield on 10-year bonds also saw a marginal decline following the release of the inflation data.

March’s inflation decline was mainly attributed to lower prices in miscellaneous goods and services, education, health, and housing and utilities.

However, core inflation, which excludes volatile food and energy costs, remained relatively steady at 4.9%.

Overall, South Africa’s inflation trajectory underscores the delicate balance between economic recovery and inflation containment amid ongoing global uncertainties.