Economy
MPC Meeting: Considerations and Policy Options
By FSDH Research
Is Expansionary Monetary Policy Appropriate?
We expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to hold rates at the current levels when it meets on January 23-24, 2017. Although the inflationary pressure and weak exchange rate justify a rate hike, it may be a difficult policy given the need to implement policies to boost growth in the economy.
The CBN will continue to use the Open Market Operations (OMO) to manage liquidity to achieve the desired goals in the short-term. At its November 2016 meeting, the MPC maintained the Monetary Policy Rate (MPR) at 14%, with the asymmetric corridor at +200 basis points and -700 basis points; retained the Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50% and 30% respectively.
The International Monetary Fund (IMF) stated that economic activity is projected to improve in 2017 especially in emerging market economies. This is contained in its latest World Economic Outlook (WEO) Update for January 2017. The IMF projects global growth at 3.4% in 2017, from an estimated growth of 3.16% in 2016. Advanced economies are projected to grow by 1.9% in 2017, from 1.6% in 2016, led by growth in the United States (U.S). The IMF projects a growth of 4.5% for the Emerging Markets and Developing Economies from an estimate of 4.1% in 2016, as policy stimulus and improvements in commodity prices aid growth.
The new administration in the U.S. led by Mr. Donald Trump has promised to embark on expansionary fiscal policy to build infrastructure and lower taxes. This policy may drive inflation rate in the U.S beyond the 2% target set by the Federal Open Market Committee (FOMC) of the U.S Federal Reserve (The Fed).
The FOMC may respond by a rate hike faster than earlier anticipated. Consequently, global yields may rise with a possible capital flight from other countries into the U.S. The appropriate monetary mitigant in Nigeria under this situation is a tight monetary policy.
The IMF estimates Gross Domestic Product (GDP) contraction in Nigeria in 2016 at 1.5%, but to grow by 0.8% in 2017. The Nigerian economy has been plagued with a number of macroeconomic issues, as well as insecurity in certain parts of the country that are now experiencing some relief. There is still foreign exchange shortages as a result of lower export revenue linked to the drop in oil price and production. There is an improvement in Nigeria’s economic outlook because of the increase in oil output and the impact of the supply cut by the Organization for Petroleum Exporting Countries (OPEC). In the short-term, a hold decision will be appropriate.
The inflationary pressure still persists in Nigeria, as we expect the January 2017 inflation rate to increase further from the December 2016 figure. The inflation rate increased in December 2016 to 18.55%, from 18.48% in November 2016. The inflation rate in the medium term would be driven by the base effect from previous higher prices, expected good food crop harvest and, possible increase in electricity tariff and pump price of Premium Motor Spirit (PMS). Given the outlook of inflation rate between now and the next MPC meeting, a rate cut will be counter-productive.
The decision of the OPEC and some non-OPEC countries for coordinated cuts in oil output agreed in
November 2016 has led to a significant boost to oil prices. The average price of Bonny Light was $54.21/b in December 2016, up by 19.27% from $45.45/b in November 2016.
The price of Bonny Light crude oil also increased by 17.44% to US$55.09b as at January 17, 2017 from US$46.91/b on November 22, 2016. The secondary data from the OPEC shows that Nigeria’s oil output decreased by 7.23% to 1.54mbd in December 2016, from 1.66mbd as at November 2016. The ongoing talks in the Niger Delta region and the provision for the amnesty programme in Budget 2017 could restore oil output.
The external reserves increased consistently after the last MPC meeting in November 2016. The 30-day moving average external reserves increased by 11.51% from $24.50bn as at November 22, 2016 to $27.32bn as at January 17, 2017. The increase in oil production from September 2016 up till November 2016 boosted the external reserves. The support from the African Development Bank (AfDB) contributed to the external reserves. A rate cut may lead to capital flight. Thus, we expect the MPC to hold rates while it awaits complementary fiscal policy support.
The Naira depreciated at the inter-bank and parallel markets between the last MPC Meeting and January 17, 2017. It recorded a marginal depreciation of 0.08% at the inter-bank market to close at $1/N305.25 on January 17, 2017 from $1/N305 on November 22, 2016. The premium between the inter-bank and parallel markets averaged about N181 after the last MPC meeting in November 2016. The parallel market rate also depreciated by 6.12% to $1/N498.50 on January 17, 2017 from $1/N468 on November 22, 2016. A rate cut may lead to further depreciation in the value of the Naira.
The average yields on the 182-day and 364-day Nigerian Government Treasury Bills (NTBs) increased to 19.17% and 22.98% in December 2016, compared with 19.11% and 22.85% respectively in November 2016.
The 91-day
NTB closed unchanged at 14.50% in December 2016. The yields on the NTBs sold on January 04, 2017 were at 14.51%, 19.17% and 22.98% on the 91-day, 182-day and 364-day NTBs, respectively. However, the average yield on the 16% June 2019; 16.39% FGN Bond January 2022 and 10% July 2030 increased to 15.65%, 15.71% and 15.86% in December 2016 from 14.99%, 15.26% and 15.61% in November 2016. They stood at 16.37%, 16.10% and 16.30% as at January 18, 2017. The increase in yields reflects the current rising inflation rate and weak exchange rate.
The monetary aggregates and credits to the private sector grew in the first ten months of the year, and above the target rates for 2016. The growth in credit was mainly from the impact of devaluation of the Naira. The broad money supply (M2) increased by 11.21% to N22.28trn in October 2016, from N20.03trn in December 2015; an annualized growth of 13.45%. The provisional growth benchmark for 2016 is 10.98%.
The narrow money (M1) grew by 16.94% to N10.02trn in October 2016, from the end-December 2015 figure. Net Domestic Credit (NDC) also grew by 23.89% in the same period; an annualized growth of 28.67%. The provisional benchmark growth for 2016 is 17.94%. The credit to government increased by 280.06% during the period.
Similarly, credits to the private sector grew by 23.24% for October 2016, compared with December 2015; an annualized growth of 27.89%. The benchmark growth for 2016 is 13.28%.
Looking at the economic developments in the country and the impact of the external developments on the Nigerian economy, we expect the MPC to hold rates at the current levels. If the peace in the Niger Delta region is maintained, oil output may increase. This will increase exports and inflow of foreign exchange.
The need for the Federal Government Nigeria (FGN) to borrow aggressively may reduce and interest rate and inflation rate may drop. All these may take a couple of months to happen.
By Adedapo Adesanya
The prices of the two major crude oil grades moderated on Friday amid news of an Iranian proposal on negotiations with the United States. However, prices remained on track for weekly gains, with Iran still blocking the Strait of Hormuz and the US Navy blocking exports of Iranian crude.
Brent crude settled at $108.17 per barrel after losing $2.23 or 2.02 per cent, while the US West Texas Intermediate (WTI) crude finished at $101.94 a barrel after giving up $3.13 or 2.98 per cent. Both benchmarks gained 2.9 per cent over the week.
It was reported on Friday that Iran sent its latest proposal for negotiations with the US to Pakistani mediators on Thursday, a move that could improve prospects for breaking an impasse in efforts to end the Iran war.
Oil prices have been on the rise since the US and Israel attacked Iran at the end of February, resulting in the closure of the Strait of Hormuz and the disruption of shipments of about a fifth of the world’s oil and liquefied natural gas supply.
Although a ceasefire has been in place since April 8, the oil market appeared to be accepting the uneasy truce in the conflict since Iran had already said and signalled that it won’t open the chokepoint to free traffic and won’t return to negotiations unless the American blockade is lifted.
There are fears of an escalation amid reports that US President Donald Trump would be briefed on further military options to force Iran’s hand to sign a deal, which could involve a ground operation.
Prices could spike to $140 per barrel, according to the Speaker of Iran’s Parliament, Mr Mohammad Bagher Ghalibaf, saying the US Administration is getting “junk advice” from people like [Treasury Secretary] Bessent, “who also push the blockade theory and cranked oil up to $120+. Next stop:140.”
The United Arab Emirates’ departure from the Organisation of the Petroleum Exporting Countries (OPEC) this week may still mean that the market’s most striking feature in the next few years is not too little supply, but too much. It left the cartel to boost production (target ~5 million barrels per day by 2027) and gain full control over its oil strategy and global partnerships.
By Adedapo Adesanya
The Lagos Chamber of Commerce and Industry (LCCI) has urged the federal government to prioritise reforms that address constraints in the manufacturing sector as it tackles broader macroeconomic and fiscal challenges facing the Nigerian economy.
President of LCCI, Mr Leye Kupoluyi, gave the advice on Thursday in Lagos, at the chamber’s quarterly state of the nation’s economy news conference.
He stated that the manufacturing sector remained a critical driver of revenue and industrial growth, citing a strong performance in 2025.
Mr Kupoluyi noted that the sector contributed N1.17 trillion in Value Added Tax (VAT), representing a 45.61 per cent increase from N803.53 billion recorded in 2024, adding that the Company Income Tax (CIT) from the sector rose to N881.29 billion, up by 32.83 per cent from N663.46 billion in the previous year.
“This strong year-on-year growth reinforces the sector’s expanding role in generating government revenue and in Nigeria’s industrial development.
“Following these results, we call on the government to invest more in productive infrastructure and economic policies that drive growth through job creation, lower production costs, and fiscal interventions,” he said.
On the global terrain, the LCCI president noted that the global economy remained unsettled, shaped by geopolitical tensions, supply chain disruptions and monetary tightening in advanced economies.
He said these trends had sustained inflationary pressures globally, while exposing emerging markets, including Nigeria, to capital outflows and currency volatility.
Mr Kupoluyi noted that Nigeria had benefited from high crude oil prices, warned against mismanaging the resulting windfall, urging the government to channel oil revenues into the Sovereign Wealth Fund, critical infrastructure and diversification initiatives to reduce import dependence and support long-term growth.
On monetary policy, the chamber’s president commended the Central Bank of Nigeria’s Monetary Policy Committee for reducing the Monetary Policy Rate by 50 basis points to 26.5 per cent at its February meeting.
He described the move as a cautious but important shift, reflecting growing confidence amid improvements in inflation and external sector performance.
Mr Kupoluyi also highlighted improvements in the foreign exchange market, noting that the naira had shown relative stability and appreciated to about N1,350.79 to the Dollar in the official market.
He said the performance reflects improved liquidity, investor confidence and the impact of ongoing reforms, but called for stronger policy coordination, increased FX inflows and fiscal discipline to sustain stability.
On fiscal operations, the LCCI president raised concerns over weak capital budget implementation, citing the rollover of N7.71 trillion in unexecuted 2025 capital projects.
He said delays in fund releases, bureaucratic bottlenecks and inefficiencies had continued to undermine project delivery and strain contractors.
He urged the government to develop a more effective framework for capital budget releases to ensure timely funding and execution of projects.
Addressing the oil and gas sector, Mr Kupoluyi welcomed the ongoing reform efforts aimed at boosting crude oil production and improving regulatory processes.
He called for a fully digital regulatory ecosystem to enhance transparency, accelerate approvals and restore investor confidence.
The official added that high global oil prices presented an opportunity for Nigeria to strengthen its position as a major supplier, provided local production and refining capacities are improved.
The LCCI president, however, expressed concern over high import duties on paper, printing materials and related inputs, noting that the policy had increased production costs across several value chains.
“The situation is worsened by port delays, multiple regulatory checks and inconsistent tariff classifications.
The chamber also called for a review of import duties, integration of regulatory agencies into the National Single Window and measures to reduce cargo clearance timelines.
“A balanced policy mix of moderate tariffs, support for local production and stable macroeconomic conditions would enhance industrial growth and reduce business costs,” he said.
He also reiterated its commitment to continued engagement with government and stakeholders to promote policies that support a thriving business environment.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange rose by 0.16 per cent on Thursday, April 29, with the Unlisted Security Index (NSI) returning above the 4,000-point mark after chalking up 6.55 points to settle at 4,005.78 points compared with the previous day’s 3,999.23 points.
During the trading session, the market capitalisation of the platform went up by N3.92 billion to close at N2.396 trillion, in contrast to the N2.392 trillion it ended on Wednesday.
The upliftment of the alternative stock market was influenced by the gains posted by four securities, which offset the losses printed by two securities.
According to data, Central Securities Clearing System (CSCS) Plc chalked up N4.03 to close at N76.02 per share versus the preceding session’s N71.99 per share, Food Concepts Plc appreciated by 24 Kobo to N2.67 per unit from N2.43 per unit, UBN Property Plc climbed 20 Kobo to trade at N2.23 per share versus N2.03 per share, and Geo-Fluids Plc improved by 9 Kobo to N3.00 per unit from N2.91 per unit.
On the flip side, MRS Oil Plc lost N17.65 to end at N178.10 per share compared with the previous price of N195.75 per share, and FrieslandCampina Wamco Nigeria Plc dipped by N9.76 to N90.24 per unit from N100.00 per unit.
The volume of securities traded during the trading day went up by 184.3 per cent to 877,682 units from 308,698 units, the value of securities jumped 5.7 per cent to N26.7 million from N25.2 million, and the number of deals soared by 100 per cent to 56 deals from 28 deals.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value (year-to-date) with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 60.1 million units exchanged for N4.1 billion, and Okitipupa Plc with 27.8 million units traded for N1.9 billion.
GNI Plc also closed as the most active stock by volume (year-to-date) with 3.4 billion units sold for N8.4 billion, followed by Resourcery Plc with 1.1 billion units worth N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units transacted for N1.2 billion.
The market will be closed on Friday, May 1, for Workers’ Day celebration.
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