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 Dipo Olowookere
The Nigerian Exchange (NGX) Limited further depreciated by 0.84 per cent on Monday as a result of sell-offs in PZ Cussons, BUA Cement and others.
During the session, apart from the consumer goods index, which closed higher by 0.59 per cent, every other index closed lower, with the industrial goods sector the heaviest loser after shedding 3.28 per cent. The insurance space declined by 2.18 per cent, the banking sector depleted by 1.44 per cent, and the energy segment shrank by 0.09 per cent.
Consequently, the All-Share Index (ASI) retreated by 2,049.65 points to 241,749.11 points from 243,798.76 points, and the market capitalisation contracted by 1.315 trillion to N155.130 trillion from N156.445 trillion.
The market was under selling pressure yesterday, as reflected in the market breadth index, which was negative after closing with 48 price losers and 22 price gainers, indicating weak investor sentiment.
PZ Cussons was the worst-performing stock after shedding 10.00 per cent to finish at N81.00, BUA Cement lost 9.99 per cent to settle at N306.20, Red Star Express declined by 9.98 per cent to N22.10, RT Briscoe depreciated by 9.70 per cent to N12.10, and C&I Leasing dropped 9.38 per cent to trade at N28.12.
The best-performing equity for the day was International Breweries, which chalked up 9.77 per cent to quote at N14.60, NAHCO improved by 8.36 per cent to N177.00, UAC Nigeria expanded by 8.11 per cent to N199.95, DAAR Communication grew by 6.67 per cent to N1.76, and Vitafoam Nigeria gained 5.87 per cent to close at N194.80.
During the session, investors bought and sold 523.5 million shares worth N22.3 billion in 59,945 deals compared with the 441.3 million shares valued at N19.4 billion traded in 44,938 deals last Friday, indicating an increase in the trading volume, value, and number of deals by 18.63 per cent, 14.95 per cent, and 33.40 per cent, respectively.
FCMB closed the day as the most traded stock, with 102.2 million units valued at N1.0 billion. International Breweries sold 26.8 million units worth N387.2 million, Access Holdings exchanged 24.8 million units for N618.2 million, McNichols traded 20.3 million units worth N95.0 million, and Stanbic IBTC transacted 18.4 million units valued at N2.9 billion.
By Adedapo Adesanya
Nigeria met its production quota set by the Organisation of Petroleum Exporting Countries (OPEC) as crude oil and condensate production soared to an average of 1,735,398 barrels per day in June 2026, representing positive growth for a fourth consecutive month.
This is according to a statement released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and signed by its Head of Media and Corporate Communications, Mr Eniola Akinkuotu, on Sunday.
The regulator noted that in June, crude oil production hit 1.56 million barrels per day while 0.18 million barrels per day of condensates were produced. The commission revealed that Nigeria met 104 per cent of the 1.5 million barrels per day crude oil production quota set by OPEC.
Business Post reports that OPEC quota doesn’t account for condensates in its count.
In strict crude oil terms (excluding condensates), the 1.56 million daily average production Nigeria witnessed in June is the highest that Africa’s biggest oil producer has recorded since April 2020, thus representing a 74-month high.
In June, NUPRC noted that the peak combined crude oil and condensate production was 1.89 million barrels per day, reflecting Nigeria’s potential to reach 2 million barrels per day in the near term. However, the lowest production was 1.57 million barrels per day for the period in review.
According to the upstream regulator, the improved performance was primarily driven by stable production operations across most producing assets and the absence of any major pipeline outages during the period under review.
This enhanced operational stability supported improved production uptime and crude evacuation efficiency.
Nigeria, which is Africa’s biggest oil producer, has not been able to top its record-high production of 2.5 million barrels per day recorded in 2025 due to challenges ranging from underinvestment to oil theft.
By Dipo Olowookere
On the Nigerian Exchange (NGX) Limited last week, investors transacted 3.648 billion shares worth N220.568 billion in 251,861 deals compared with the 3.821 billion shares valued at N154.393 billion traded in 258,567 deals a week earlier.
Analysis showed that financial stocks led the activity chart with 2.899 billion units sold for N147.360 billion in 106,603 deals, accounting for 79.48 per cent and 66.81 per cent of the total trading volume and value, respectively.
Services equities recorded a turnover of 164.914 million units valued at N3.615 billion in 16,375 deals, and the consumer goods shares exchanged 157.451 million units worth N7.777 billion in 27,950 deals.
First Holdco, Zenith Bank, and Fidelity Bank were the busiest stocks for the five-day trading week, trading 1.745 billion units valued at N121.828 billion in 31,053 deals, contributing 47.85 per cent and 55.23 per cent to the total trading volume and value, respectively.
Business Post reports that 60 equities appreciated during the week versus 22 equities in the previous week, 28 shares depreciated versus 57 shares of the preceding week, and 58 stocks closed flat versus 67 stocks of the previous week.
International Breweries gained 40.00 per cent to trade at N13.30, RT Briscoe expanded by 32.02 per cent to N13.40, Livestock Feeds improved by 28.47 per cent to N9.25, First Holdco chalked up 25.82 per cent to close at N69.20, and Abbey Bank rose by 23.65 per cent to N9.15.
On the flip side, McNichols lost 28.57 per cent to finish at N5.00, Thomas Wyatt gave up 11.64 per cent to quote at N2.43, Geregu Power declined by 10.00 per cent to N825.70, CAP shed 9.99 per cent to settle at N157.60, and Guinness Nigeria also slipped by 9.99 per cent to N329.00.
Customs Street was under buying pressure last week, making the All-Share Index (ASI) and the market capitalisation close higher by 6.35 per cent to 243,798.76 points and N156.445 trillion, respectively.
In the same vein, all other indices finished higher apart from the growth and sovereign bond indices, which depreciated by 7.43 per cent and 0.02 per cent, respectively.
