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 Aduragbemi Omiyale
The Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) for the Nigerian private sector in July 2026 contracted to 52.5 points from 53.4 points in June 2026, a statement made available to Business Post has shown.
This occurred despite the business environment sustaining its growth last month, with an increase in new orders experienced, as inflationary pressures softened, and output and employment modestly rising.
The Head of Equity Research West Africa at Stanbic IBTC Bank, Mr Muyiwa Oni, said the PMI indicated that the private sector recorded its slowest since March 2026, as businesses also increased their input purchasing activity to keep up with current demand requirements and prepare for future workloads.
“Nigerian businesses reported improved customer demand in July while better pricing and new product launches also helped them to capture new orders arising from the increase in demand. These factors helped to keep the private sector activity in an expansionary territory, although this moderated when compared to June,” he was quoted as saying.
It was stated that while input costs increased at their slowest pace in five months, panellists reported higher costs for fuel and raw materials. Selling prices also softened in line with the picture for input costs in July.
Headline inflation eased slightly to 15.91 per cent y/y in June from 15.93 per cent y/y in May, snapping three consecutive months of price increases.
Although July inflation is likely to be higher m/m, it is expected to print lower, likely at 15.72 per cent y/y, primarily driven by favourable base effects from the corresponding period of last year, because there are no expectations of the magnitude of m/m inflation witnessed in July 2025 (1.99 per cent) to materialise this year.
“We retain our 2026 growth forecasts at 4.1 per cent as we see the oil sector growing by 3.45 per cent y/y in 2026, from 8.50 per cent y/y in 2025, while the non-oil sector is likely to grow by 4.11 per cent y/y, from 3.71 per cent y/y in 2025.
“The risks to our outlook include country-wide insecurity which may constrain food production, exchange rate pressures resurfacing, extreme-weather related conditions and higher fertiliser prices impacting crop yield, and a volatile global environment which may affect sentiment and constrain capital flows,” Mr Oni noted.
By Adedapo Adesanya
Sahara Upstream, a Nigeria-focused crude producer, has deployed a new 380,000-barrel tanker to boost exports from the OML 18 block as part of a wider push by domestic operators to invest in infrastructure and lift output and exports for Africa’s biggest oil producer.
The MT D Adesanya, which can hold more than 62,000 cubic metres of crude, will operate alongside the MT D Bayero, receiving crude from shuttle vessels at Bonny Anchorage, one of Nigeria’s main crude export hubs, before transferring it to the FSO Cawthorne storage facility.
Sahara said the tanker would help cut turnaround times, currently about 30 to 48 hours, and support a planned 50 per cent increase in exports from the block’s current level of about 950,000 barrels per month.
The block currently produces about 36,000 barrels per day, according to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), with Sahara targeting output of 60,000 barrels per day.
OML 18 is one of the Niger Delta’s oldest producing assets. It began production in 1970 and contains an estimated 1.5 billion barrels of oil equivalent in reserves.
Shell, Total and Eni sold their combined interests to Eroton in 2015 as part of a broader shift toward domestic ownership in Nigeria’s upstream sector.
This development comes as Sahara Upstream is deepening its exploration and production footprint through Asharami Energy Limited (AEL), its upstream E&P business, which says it is targeting 350,000 barrels of oil per day by 2030 through its subsidiary, Enageed Resources Limited (ERL).
The growth target comes as AEL also marks a major safety milestone, achieving 6 million Lost Time Injury (LTI)-free man-hours in its OML-148 operations — reinforcing the company’s commitment to operational excellence and safety leadership.
According to Asharami Energy, the milestone reflects its ability to execute complex operations safely, in line with Sahara’s Beyond XXX vision, which builds on the group’s 30-year legacy of responsible enterprise while marking its next chapter of impact, innovation, and sustainable growth.
The developments position Sahara Upstream and its subsidiaries among the domestic operators driving increased investment in Nigeria’s oil and gas infrastructure, as the group works to scale up production and exports for Africa’s biggest oil producer.
By Aduragbemi Omiyale
One of the leading energy firms in Nigeria, Aradel Holdings Plc, has expressed its desire to optimise its enlarged portfolio and improve operational efficiency in the second half of 2026.
The company is planning to build on the success it recorded in the first half of the year, where it grew its revenue by 577 per cent to N2.5 trillion from N368.1 billion in H1 2025.
The significant rise in earnings was driven by higher production volumes together with stronger realised crude oil and gas prices, with the average at $90.4/bbl and $2.08/mmscf, respectively.
In the period under review, the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) increased by 688 per cent to N1.4 trillion from N176.4 billion in the corresponding period of last year, while the operating profit surged by 789 per cent to N1.1 trillion from N118.6 billion due to higher revenue and crude handling income at N149.8 billion, partly offset by underlift cost and general and administrative costs.
The net cash generated from operations was N975.6 billion between January and June 2026 versus N140.8 billion in the same period of 2025, reflecting the cash generation of the enlarged organisation.
The net debt contracted by 70 per cent on a year-to-date basis to N46.5 billion from N475.1 billion as of December 31, 2025.
Aradel, in the period under consideration, improved its post-tax profit by 30 per cent to N191.0 billion from N146.4 billion, a development that impressed its chief executive, Mr Adegbite Falade, who said, “A firmer price environment supported performance, generating net cash from operating activities of N975.6 billion and a closing cash balance of N1.7 trillion.”
“Our enlarged portfolio provides more opportunities to generate stronger cash flow and returns for shareholders and unlocking that potential is our main focus.
“We reaffirm our full year production guidance of 110 – 140 kboepd and remain committed to operating responsibly in a changing energy landscape and to delivering lasting value for our stakeholders,” he stated.
