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Economy

After Recession: A Need for Policy Change?

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FSDH Merchant Bank

By FSDH Research

We expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to hold rates at the current levels, while the fiscal authority continues to implement policy measures to sustain growth. The MPC is scheduled to meet on September 25 and 26, 2017.

The current tight monetary policy is justified in order to curb the high inflation rate and maintain stability in the foreign exchange (FX) market.

At its July 2017 meeting, the MPC maintained the Monetary Policy Rate (MPR) at 14%, with the asymmetric corridor at +200 and -500 basis points; Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50% and 30% respectively.

In the international scene, the International Monetary Fund (IMF) in its World Economic Outlook, July 2017 edition, forecasts global economic growth at 3.5% in 2017. The IMF indicated that the risks around the global growth forecast are from monetary policy normalisation in some advanced economies, notably the U.S, anti-globalisation stance, and geopolitical tensions.

The Federal Open Market Committee (FOMC) of the United States (U.S) Federal Reserve (The Fed) maintained the Federal Funds Rate (The Fed Fund Rate) at its September 2017 meeting but signalled unwinding of balance sheet as from October 2017.

At the domestic level, the Q2, 2017 figures from the National Bureau of Statistics (NBS) shows that the GDP in Nigeria recorded a growth rate of 0.55%. The recovery in crude oil production and price and the introduction of the Investors’ and Exporters’ Foreign Exchange Window (I&E Window), increased the supply of foreign exchange, and helped to pull the economy out of recession.

Meanwhile, the accretion to the external reserves continued after the MPC meeting in July 2017. The 30-Day moving average external reserves increased by 3.21% to $31.83bn as at 31st August

2017, from $30.84bn as at 31st July 2017.

However, the value of the Naira recorded a mixed performance but has shown relative stability since the last MPC meeting in July 2017. The value of the Naira depreciated in the official market, while it closed unchanged in the parallel market. The premium between the inter-bank and parallel markets averaged about N61 between the last MPC meeting in July 2017 and September 15, 2017 from an average of N66 during the period between the MPC Meetings of May and July 2017.

The monetary aggregates as at July 2017 show that the annualised growth rate in money supply is below the target that the CBN sets for the year 2017. The broad money supply (M2) decreased by 5.08% to N22.20trn in July 2017, from N23.39trn in December 2016. This is lower than the CBN’s growth rate target of 10.29% for the year 2017.

The CBN has maintained tight monetary policy to curb high inflation rate and ensure FX stability.

Our forecast shows that the inflation rate will remain in the range of 15.55%-16.20% between September 2017 and December 2017.

This is based on the assumption that the Federal Government of Nigeria (FGN) does not increase the price of Premium Motor Spirit (PMS) and Electricity Tariff. The forecast range is higher than the CBN’s target of 6%-9% and the growth retarding inflation benchmark of 12.5%.

The yields on NTBs decreased in August 2017, compared with the yields in July 2017. At the NTBs auction, average yield on the 91-day, 182-day and 364-day NTB dropped. The yields on the FGN Bonds that we monitored closed higher in August 2017 when compared with the yields in the preceding month. We expect the yields on the fixed income securities to drop.

This is because of the stability in the FX market, plans of the FGN to refinance part of the local debt with foreign debt and the positive GDP growth rate expected going forward.

Looking at the developments both in the domestic and international markets, a hold in rates at this meeting will be appropriate in order to sustain the current growth rate in the economy. However, the MPC may adjust the asymmetric corridor around the MPR to signify easing.

Meanwhile, fiscal measures in the forms of tax relief and tariff adjustments are required to boost economic activities.

 

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via [email protected]

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Economy

NASD OTC Bourse Declines Further by 0.16%

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NASD OTC securities exchange

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.16 per cent decline on Tuesday, January 21, extending its loss this week to two.

This further depleted the market capitalisation of the alternative stock exchange by N1.65 billion at the close of transactions to N1.071 trillion from the N1.073 trillion it closed in the preceding session.

In the same vein, the NASD Unlisted Security Index (NSI) slid by 4.79 points to wrap the session at 3,100.33 points compared with 3,105.12 points recorded in the previous session.

The bourse ended with two price losers yesterday led by Geo Fluids Plc, which gave up 32 Kobo to trade at N4.38 per share versus Monday’s closing price of N4.70 per share and FrieslandCampina Wamco Nigeria Plc, which depreciated by 15 Kobo to close at N39.50 per unit compared with the previous day’s N39.65 per unit.

On the second trading day of the week, the number of deal carried out slightly went up by 8.3 per cent to 13 deals from the 12 deals executed at the previous trading session.

Also, the value of transactions increased by 97.2 per cent to N4.5 million from the N2.5 million recorded a day earlier, while the volume of securities traded in the session declined by 71.6 per cent to 183,780 units from the 767,610 units recorded on Monday.

FrieslandCampina Wamco Nigeria Plc remained the most traded equity  by value (year-to-date) with 4.1 million units worth N162.9 million, followed by Geo-Fluids Plc with 9.1 million units valued at N44.0 million, and 11 Plc with 55,358 sold for N14.5 million.

Also, Industrial and General Insurance (IGI) Plc closed the day as the most active stock by volume (year-to-date) with 25.3 million units worth N5.9 million, trailed by Geo-Fluids Plc with 9.1 million units sold for N44.0 million, and FrieslandCampina Wamco Nigeria Plc with 4.1 million units valued at N162.9 million.

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Naira Crashes to N1,552/$1 at NAFEM, N1,670/$1 at Black Market

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By Adedapo Adesanya

Pressure further mounted on the Nigerian Naira in the different segments of the foreign exchange market on Tuesday, making its value to shrink against the United States Dollar at the close of business.

In the Nigerian Autonomous Foreign Exchange Market (NAFEM), the domestic currency crashed against its American counterpart during the session by 0.18 per cent or N2.73 to settle at N1,552.78/$1, in contrast to Monday’s closing price of N1,550.05/1.

But against the Pound Sterling and the Euro, the local currency traded flat in the official market yesterday at N1,906.98/£1 and N1,613.48/€1, respectively.

As for the black market segment, the Naira weakened against the Dollar on Tuesday by N5 to sell for N1,670/$1 compared with the preceding day’s value of N1,665/$1.

Meanwhile, the cryptocurrency market heaved a sigh of relief during the session as President Donald Trump created a crypto task force dedicated to “developing a comprehensive and clear regulatory framework for crypto assets.”

The task force will be led by Commissioner Hester Peirce, a long-time advocate for the crypto industry, and will work closely with the crypto industry to develop regulations. This is after Mr Gary Gensler, an opponent of crypto, officially stepped down as chairman of the US Securities and Exchange Commission (SEC) after Mr Trump’s term started.

The task force will also work with Congress, providing “technical assistance” as it crafts crypto regulations.

Solana (SOL) recorded a 9.2 per cent growth to sell at $257.09, Dogecoin (DOGE) rose by 7.6 per cent to $0.36789, Ripple (XRP) added 4.0 per cent to finish at $3.18, and Bitcoin (BTC) increased by 3.7 per cent to $105,515.03.

Further, Binance Coin (BNB) appreciated by 2.8 per cent to close at $699.01, Cardano jumped by 2.1 per cent to trade at $0.9972, Ethereum (ETH) soared by 2.0 per cent to settle at $3,308.21, and Litecoin (LTC) went up by 1.5 per cent to end at $116.72, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 each.

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Brent Falls Below $80 as US Signals Boost to Oil Output

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brent crude oil

By Adedapo Adesanya

The price of the Brent crude oil grade went below the $80 mark on Tuesday after it shed 86 cents or 1.1 per cent to trade at $79.29 per barrel after the US President, Mr Donald Trump, signaled the possibility of his country boosting its oil production.

This move raised concerns of higher US output in a market widely expected to be oversupplied this year, with the US West Texas Intermediate (WTI) crude futures falling by $1.99 or 2.6 per cent during the session to $75.89 per barrel.

On his first day in office, the US President signed an executive order to unleash America’s energy by easing the barriers to oil and gas extraction and production and revoking a series of climate orders by former President Joe Biden.

As pledged in the campaign, the executive order follows the declaration of a national energy emergency.

The declaration includes measures to expedite energy infrastructure delivery, and emergency approvals by agencies “to facilitate the identification, leasing, siting, production, transportation, refining, and generation of domestic energy resources, including, but not limited to, on Federal lands.”

This will likely confirm expectations that the oil market will be oversupplied this year after weak economic activity and energy transition efforts weighed heavily on demand in top-consuming nations the US and China.

President Trump also said he was considering imposing 25 per cent tariffs on imports from Canada and Mexico from February 1, rather than on his first day in office as promised.

The delay helped ease concerns of an immediate tightening of the market among US refiners, many of which are geared to process the type of crude oil supplied by these countries.

The US Energy Information Administration (EIA) reiterated on Tuesday its expectations for oil prices to decline both this year and next.

On its part, the Organisation of the Petroleum Exporting Countries (OPEC) projects robust demand growth in the world both this year and next.

In 2025, OPEC says demand is set to grow by 1.4 million barrels per day leaving its projection unchanged from the December report.

However, losses were also limited after the US president said his administration would “probably” stop buying oil from Venezuela. The U.S. is the second-biggest buyer of Venezuelan oil after China.

Also weighing on prices on Tuesday was the potential end to the shipping disruption in the Red Sea.

Yemen’s Houthis said on Monday they will limit their attacks on commercial vessels to Israel-linked ships provided the Gaza ceasefire is fully implemented.

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