The MPC and Encouraging Non-Oil GDP Growth



Monday, March 14, 2015 2:52pm / By Dr. Temitope Oshikoya** 

The MPC is cut between the hard rock and the deep sea. Inflation in February is likely to be much higher than originally anticipated given the volatility in the parallel market during that month. The huge differential between the parallel and interbank rate in February and recent fuel scarcity would likely result in significant one- off step increases in inflation.

The MPC should be looking for signs as to whether or not this is a one-off temporary surge in inflation as the exchange rate differential has narrowed in March. Inflation numbers for March and April would provide the clues. This would likely make the MPC to hold on the MPR at 11% at this meeting.

While several analysts have focused on the year-on-year growth, the non-oil GDP numbers for Q4 2015 were not that bad, especially when compared sequentially with Q3 2015. While the oil sector and construction sub-sector posted poor growth rates, Manufacturing, agriculture, and key services sectors of education, trade, financial services, and telecom posted decent numbers, which suggest some semblance of economic stability in Q4. 

The real growth rates need to move higher though for a recovery phase to be well established, and fiscal spending from April with  the passage of the budget should help, especially the construction sector.  

Oil prices have rebounded sharply from their January lows and the bottom appeared to be forming, but some retracements from recent rally are expected. This should help the oil sector, but we need to worry about oil production not meeting budget estimates.  

It will be interesting to see what Q1 2016 numbers would show for the non-oil sectors to confirm the relative economic stability or further slippages before the MPR decides on the next course of action on MPR.  

The CBN is probably weighing options on the exchange rates in view of the fiscal constraints. Given the preference of the fiscal authorities, however, the official exchange rate would likely stay the same at this MPC meeting. There may be some pronouncements relating to some limited flexibility on administrative controls. 

Temitope Oshikoya, CEO Nextnomics Advisory

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