How CBN's November 2019 MPC Meeting Affects the Common Man

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Tuesday, November 27, 2019 / 07:45 PM / By Adesola Borokinni, Proshare research / Image Header Credit: Youtube

 

Central Bank of Nigeria's (CBN's) recent monetary policy communique indicates that the regulator has decided to maintain a constant policy at the end of the year 2019. The communique noted that it retained the monetary policy rate (MPR) at 13.5 per cent, asymmetric corridor at +200/-500 basis points around the MPR, CRR at 22.5 per cent and the Liquidity Ratio at 30 per cent.

 

The CBN gave reasons for maintaining the stance as due to positive macroeconomic indicators such as the growth in the GDP in the third quarter to 2.28%, a decline in the non-performing loan to a further 6.56 per cent at end-October, an increase in the capital adequacy of banks and an increase in absolute gross credit, amounting to N1, 169.70 bn, was recorded between end-May and end-October 2019.

 


Calming Fears


The governor allayed feared of an upsurge in inflation rate attributing the present rise in inflation of 11.61% to temporary border closure and festive period approaching. He gave a reassurance that the Commodity  Development  Initiatives,  designed  to  finance  the agricultural value chain of ten ((10) commodities  namely; Cassava, Cocoa, Cotton, Rice, Tomato, Poultry, Livestock  and  Dairy, Fish, Oil Palm  and  Maize, which has  received  N171.66 bn in funding will likely increase domestic production and reduce inflation.

 

Although there was a recorded growth in the GDP to 2.28%, this was still below the growth rate of the Nigerian population and the envisaged growth rate of 4.5% in the Economic Recovery Growth Plan (ERGP), which indicates that there is no significant improvement in the average life of a Nigerian.

 

 More issues that call for attention are the reduction in foreign direct investment (FDI) and the decrease in capital importation recorded in Q2 2019. The increase in the absolute gross credit to N1,169.70bn is still insufficient to cater for the huge investment needed to grow the real sector of the economy. Therefore, better strategies are required to attract more FDI into the economy, increase capital importation, and push up domestic credit supply to bring about the necessary capital to achieve strengthened economic growth.

 

Another issue of concern is the modest growth in GDP of 2.28% in Q3 2019, attributed to Nigeria exceeding its OPEC limit/quota on oil production in the course of the quarter. Nigeria recorded an increase in its oil production to 2.04m barrel per day; this indicated that though GDP grew, the rise was related to Oil sector growth. The continued dominance of Nigeria's oil sector relative to recurrent fiscal revenue leads to the question; how effective is the diversification program of the central bank?  In its statement the CBN said the manufacturing sector received N459.69 bn, the highest in two decades,  consumer  loans  got  N356.65bn,  General  Commerce  N142.98bn, Information and Communications  N82.07bn, Construction N74.52bn, Agriculture, Forestry and  Fishing N73.20bn,  and Mining and Quarrying N3.64bn (see chart 1 belowand  Transportation  and  Storage  (N3.09  bn). The questions that come to analysts minds are, how effective have these loans been? Have they translated to growth in various other non-oil sectors? Avaialble data (see table 1 below) shows that growth occured at different rates in different sectors of the economy in Q3 2019.

 



Table 1 Loan Allocations By Sectors

 

 

Growth Rate

Sector

Loan(N'bn)

Q3, 2019(%)

 Q2, 2019(%)

Manufacturing

459.69

1.1

-0.13

Info and Communication

82.07

9.88

9.01

Construction

74.52

2.37

0.67

Agriculture, Forestry, and Fishing

73.2

2.28

1.79

Mining and Quarry

3.64

6.19

7.00

Transportation and Storage

3.09

18.24

8.02

Source: CBN, NBS Q3, 2019



Growth occured across all the sectors in which the CBN approved loan disbursements except the mining and quarry sector, which experienced a reduction in growth from 7% of the previous quarter to 6.19% in the third quarter of 2019. The sectors that experienced the most significant improvement includes the manufacturing, construction, and transportation and storage sectors, which witnessed growth of 1.1%, 2.37%, and 18.24%, respectively.

 

  

 

Table 2 Nigeria: Selected Food Prices January-October 2019


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The CBN saw an increase in absolute gross credit, amounting to N1, 169.70 bn, tied to the increase in the loan-to-deposit ratio to 60%. The central bank in a statement noted that there would be a further increase to 65% by December 2019, some economist have expressed reservation as regards this increment, they observe that the CBN should not force deposit money banks into increasing its loan to the real sector, because of its likely consequence on the quality of banking sector risk assets.

 

According to these analysts, the increased lending pressure might worsen banks non-performing loans (NPLs). The colunatry lending increase school of thought argue that the CBN should work together with the fiscal authorities in ensuring that the appropriate infrastructures required for real sector growth are constructed or provided.

 

In its communique, the CBN said the Community development initiative was designed to finance the agricultural value chain of ten ((10) commodities namely; Cassava, Cocoa, Cotton, Rice, Tomato, Poultry, Livestock and Dairy, Fish, Oil Palm, and Maize, which has received N171.66 bn in funding. Four of these crops received over N140.12bn naira or  81.6% of total disbursements  (Cassava,  N11.44bn; Cotton, N40.47 bn naira; Rice, N53.40bn; Oil palm, N34.81bn naira). The table below shows the price trends of all the agricultural produce financed by the community development initiative to evaluate if there has been any significant reduction in the prices of these commodities.

 


Chart 1 Nigeria Miniing and Quarrying Activties Q1 2018-Q3 2019


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Helping The Common Man


Although the recently released data shows a GDP growth rate of 2.28% in Q3 of 2019, the question arises, how many new jobs are were created compared to the population growth rate of 2.6%? What meaningful impact have these policies had on local commodities consumed by the average citizen in Nigeria? Is credit supply readily available and extended to the average citizen?

 

The answers provided are pertinent to showing the direction of the Nigerian economy. Analysts note that it is not enough that policies are institued, but what should be of concern is how the policies trickle down to improve the welfare of the average citizen. Unfortunately, Nigerians mainly tell tales of the lack of impact of policies on their daily lives by way of reduced commodity prices, fall in transportation cost, and ultimately a drop in the overall cost of living.

 

Monetary policy observers insist that the ultimate purpose of policy should be to improve the standard of living of citizens; this is yet to appear in the economy of the average Nigerian household. Hence, additional household microeconomic data needs to be gathered, processed and analysed by the NBS to shape both monetary and fiscal policy in 2020. Also, the mechanism by which the effect of government policies transmit to citizens livelihoods may need to be properly studied to bring about more equitable and inclusive growth.

 



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