The monetary policy committee (MPC) voted by six votes to four in
September to cut its policy rate by 100bps to 11.50%. Three members voted to
hold and a fourth to trim the rate by 50bps. From the personal statements that
the CBN last week released, we can summarize the argument for an unchanged
stance as a response to persistently rising inflation, welcome increases in
monetary aggregates and improved credit flows to the economy (including from
the CBN's own development finance initiatives). The majority stress the primacy
of the CBN's remit to achieve and maintain price stability.
Between May 2019 and August 2020 total credit to the
economy increased by N3.8trn from N15.5trn to N19.3trn. (The data appear to
cover lending by the deposit money banks.) We learn that the sectors to have
benefited the most are manufacturing (N760bn), consumer credit (N530bn), and
oil and gas (N480bn). We caution that the impressive growth in loan books
seemingly faltered in September (Good
Morning Nigeria, 06 November 2020).
One member observes that over the same period the
share of banks' total assets held in government securities declined from 23% to
The healthy rise in banks' lending was their response
to adjustments to the minimum loans-to-deposit ratio made by their regulator
(the CBN). The MPC is unanimous in its views that the CBN's development finance
role has softened the blow of the virus and that more of the same is desirable.
A recent example is the N200bn mortgage facility for low-income earners.
On the fiscal
side we learn that the FGN's retained revenue amounted to N1.86trn in H1 2020
(47.6% of budget) and its expenditure to N4.45trn (88.8%). The underperformance
on spending was on capital items, and the N2.59trn deficit was covered by FGN
bond sales to the tune of N1.42trn
January-August the ratio for total debt service/total revenue reached 84.1%,
compared with 51.5% in the year-earlier period. We suspect that the
deterioration reflected the difficulty in collecting revenue under Covid-19
conditions more than any steep rise in debt servicing costs.
There is little coverage of fx in the statements
beyond praise for the CBN for the attainment of stability in the market. One
member notes steps taken by the CBN to address inadequate demand and supply
although we have to say that they will not be transformative: cooperation with
the Nigerian Export-Import Bank to boost non-oil exports, new procedures to
combat over-invoicing and the development of a system to verify import product
CBN staff forecasts have growth contracting by -3.9%
y/y and -3.5% respectively in Q3 and Q4 2020, and then recovering by no more
than 0.7% in Q1. Our own projections are negative growth of -4.7% y/y, -2.8%
and -0.9% for the three quarters before a return to positive ground in Q2 2021.