CBN’s Monetary Committee Happy With Increase In Nigeria’s External Reserves

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has expressed satisfaction with moderate improvement in Nigeria’s external reserves, which it said, stood at US$45.2 billion as at March 21, 2019. This amounts to 6.73 per cent increase from US$42.35 billion at end-February 2019.

The Monetary Committee, at its meeting yesterday, Monday, March 25 in the nation’s federal capital, Abuja, also expressed happiness with moderate increase in oil prices across the globe.

Read the full text of the communiqué that emanated from the meeting:

The Monetary Policy Committee (MPC) met on the 25^thand 26^th March, 2019; againstthe backdrop of developments in the global and domestic economic environments in the first quarter of 2019.  Eleven members of the Committee were present.

Global Economic Developments

The Committee notedwith concern the weakening performance of global output growth at the end of 2018 and observed that developments in the first quarter of 2019were characterised by legacy headwinds from the second half of 2018. These include: the continued trade war between the US and China, policy uncertainty amongst advanced economy central banks;persisting uncertainties surrounding BREXIT negotiations; vulnerabilities in major financial markets and rising public debt in some Emerging Market and Developing Economies (EMDEs). Consequently, global output growth for 2019 was downgraded by the IMF from 3.7 per cent to 3.5 per cent.

Price developments across major advanced economies, continued to moderate in the review period alongside signals of weakening output growth. In the light of this development, the US Fed, the Bank of England and the European Central Bank retreated from their earlier stance of monetary policy normalisation in favour of a monetary policy accommodation. This led to volatilities in the financial markets of the advanced economies as the balancing of portfolios moved capital from the equities to the bonds market.

The MPC noted the moderate appreciation of the US dollar against the currencies of most advanced and emerging market economies. It further noted the trend of declining long term yields in the US, and the likelihood that capital flows may be redirected to EMDEs in the medium term.

Domestic Output Developments

Output data from the National Bureau of Statistics (NBS) indicate that real Gross Domestic Product (GDP) grew by 2.38 per cent in Q4 2018 from 1.81 and 2.11 per cent in the previous quarter and corresponding period of 2017. The major impetus for growth came from the non-oil sector, which grew by 2.7 per cent in Q4 2018, while the oil sector contracted by 1.62 per cent.

The Committee welcomed the continued positive sentimentsin the Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMIs) for the 24^th and 23^rd consecutive months in March 2019. The manufacturing PMI roseby 57.4 index points compared with 57.1 in the previous month. Similarly, the non-manufacturing PMI increased by 58.5 index points compared with 58.4 in February 2019. The increase in both measures of PMI was driven by increases in production, employment, raw material inventories and new orders. This improved outlook was attributable to the continued stability in the foreign exchange market, various interventions by the Bank in the real sector and the effective implementation of the Economic Recovery and Growth Plan (ERGP) by the Federal Government. Furthermore, on the current measure of national output, the MPC noted the need to rebase the GDP, an exercise which was last carried out in 2010.

Developments in Money and Prices

The Committee noted that broad money supply (M2) contracted by 1.98 per cent in February 2019, below its level at end-December 2018.Net Foreign Assets (NFA) contracted by 7.47 per cent in February 2019 relative to its level at end-December 2018. In contrast, M3 grew by 4.31 per cent in February 2019 compared with its level at end-December 2018. Net Domestic Credit also grew by 10.68 per cent in February 2019. The growth in NDC was accounted for by the increase in credit to Government which grew by 17.20 per cent in February 2019 over its level at end-December 2018. Credit to the private sector also rose by 6.41per centcompared with its growthbenchmark of 9.41 per cent. Given the positive trajectory, the Committee urged the Management of the CBN, to sustain the various initiatives of the Bank, particularly the partnership betweenthe Bankers Committee and the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) aimed at establishing a national microfinance bank to cater for the MSMEs of the economy.

The Committee noted the continued moderation in inflation asheadline inflation (year-on-year)declined further to11.31 percentin February 2019from 11.37 and 11.44 per cent in January 2019 and December 2018, respectively.The decreasein headline inflation was driven mainly by food inflation, which declinedto 13.47 per cent in February 2019from 13.51 per cent in January 2019, while coreinflationdeclinedmarginally to 9.80 per centfrom 9.91 per cent in the previous month.On amonth-on-month basis,headline, food and core inflation declined to 0.73, 0.82 and 0.65 per cent in February 2019,respectively, from 0.74, 0.83 and 0.81per centinJanuary 2019. The Committee noted the upside risks to inflation to include; high cost of energy, infrastructure constraints,insecurity in some parts of the country; and anticipated increase in liquidity from the late implementation of the 2018 budget, and noted thatmostof these factors were outside the ambit of monetary policy. The MPC,therefore, urged the Federal Government to sustain its current effort instimulating output growth by executing the policies approved in the ERGP.

The net liquidity position reflected the impact of OMO auctions, foreign exchange interventions, statutory allocations to states and local governments, and maturing CBN Bills. Consequently,the average Inter-bank call rate increasedto 16.45 per cent in February 2019 from 15.00 per cent in January2019. The Open Buy Back (OBB) rate, however, declined marginally to 18.79 per cent in February 2019 from19.71 per cent inJanuary2019.The interbank call rates, however, closed at 8.0 per cent onMarch 8, 2019, while the OBB closed at 14.39 on March 22, 2019.

The Committee noted that inspite of the recent upsurge in capital inflow into the economy, the All-Share Index (ASI) and Market Capitalization (MC) continued to decline, reflecting global sentiments in portfolio rebalancing from equities tofixed income securities. This generally reflected theperceived risk at the long end of the yield curve.

The Committee noted with satisfaction, the continued stability in the foreign exchange market atthe Investors’ and Exporters’ (I&E) window of the market. In particular, italso observed the moderate improvement in oil prices and stable accretion to external reserves, which stood at US$45.2 billion as at March 21, 2019, a 6.73 per cent increase from US$42.35 billion at end-February 2019.