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MPC meets today, inflation, rising unemployment in focus

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Members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) will today begin their two-day meeting in Abuja amid concerns of rising inflationary pressure and worsening unemployment.

The committee is expected to review the domestic and external macroeconomic conditions and financial markets developments since its last meeting in January and provide forward guidance on how it intends to balance the competing goals of price and exchange rate stability.

Commenting on today’s meeting, analysts at Cordros Capital Limited noted that the persistent increase in inflation was primarily due to the combined effects of ongoing security challenges in the country, forex liquidity challenges, and poor distribution networks.

“Although a dovish monetary policy contradicts rising inflationary pressures, we expect the committee to reiterate that a hike in interest rate will oppose its current growth mandate, given the adverse impact on the rising cost of borrowing for households, businesses and the government,” the Lagos-based firm stated.

Also, analysts at Greenwich Merchant Bank envisaged that the committee should back its pro-growth stance by holding the key parameters at their current levels.

“On the domestic scene, the committee would assess the economy’s surprise exit from its recession (thanks to the non-oil sector growth of 1.7 per cent), along with the optimistic outlook for 2021.

The analysts noted that “higher oil prices, which have returned to pre-pandemic levels sustained inflationary pressures (inflation rate rose to 17.3 per cent in February, from 16.5 per cent in January), higher unemployment readings (unemployment rate settled at 33.3 per cent in Q4:2020, up from 27.1 per cent in Q2:2020), pressure on external reserves from ongoing FX difficulties, and the country’s ballooning debt levels will all be factored in.”

They pointed out that overall, the policy-setting committee remains faced with three options: to tighten, hold, or lower the key policy rate.

They said: “Although, we opine a tightening stance could drive back capital flows to help boost external reserves, stem inflationary pressures and bring in the much-needed price stability, it could also distort the progress achieved so far in supporting growth.

“On the other side, while a loosening stance could hasten an economic recovery, helped by the lower credit environment, it could also worsen the real rate of returns and persistent price pressures.

“Against this backdrop, we see the committee embracing its current stance. We remain conscious of the MPR’s weak transmission effect, which supports the bank’s use of unorthodox policies, as assets remain unanchored by the policy rate.

“Case in point, the steep rise in Open Market Operation (OMO) yields appears to have set the tone of fixed income rates, pushing up stop rates at the Primary Market Auctions (PMAs) for T-bills and the bonds to 6.8 per cent (average 364-day) and 11.8 per cent, from 1.2 per cent (average 364-day) and seven per cent respectively.”

It added that a possible increase in the MPR just might suggest that authorities are prioritising efforts to control inflation over economic growth.

Speaking in a chat with THISDAY, Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said he doesn’t expect any change in the monetary policy instrument.

“Unemployment is a fiscal lagging indicator that you do not use monetary policy tools to address; it is inflation that is a big problem.

“I don’t think the MPC will adjust any of the tools because it is a very complex situation. I won’t be surprised that they do, but I am not expecting anything,” Rewane added.

Also, Head of Research, United Capital Limited, Mr. Wale Olusi, anticipates that the MPC would hold interest rate, but would continue to tighten using its open market operations.

According to him, leaving the interest rate at the current level would encourage economic growth. At the last meeting in January, the MPC left all the monetary policy tools unchanged.

The Monetary Policy Rate (MPR) was left at 11.5 per cent; cash reserve ratio (CRR) at 27.5 per cent and asymmetric corridor at +100/-700bps around the MPR, and the liquidity ratio at 30 per cent.

Surprisingly, the domestic economy had exited the COVID-19 induced recession in the fourth quarter of 2020 with real Gross Domestic Product (GDP) growth growing marginally by 0.11 per cent year-on-year, compared with a contraction by 3.62 per cent recorded in the previous quarter.

Nevertheless, the Consumer Price Index (CPI), which measures inflation increased by 17.33 per cent (year-on-year) in February 2021, compared to16.47 per cent in the preceding month, according to recent data released by the National Bureau of Statistics (NBS). The composite food index had risen by 21.79 per cent in February compared to 20.57 per cent in January. Also, Nigeria’s unemployment rate rose to 33.3 per cent in the fourth quarter of 2020 (Q4 2020) compared to 27.1 per cent in Q2, according to a recent report released by the NBS. That implied that 23.18 million of the country’s labour force either did nothing or worked for less than 20 hours a week, making them unemployed by the country’s definition of unemployment.

-THISDAY

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FG Not Aware Of $875m Arms Deal With US – Lai

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The Federal Government says it is not aware of any $875 million ammunition deal with the US.

 

Daily Trust had reported how Foreign Policy highlighted the action of US lawmakers on the proposed sale of 12 AH-1 Cobra attack helicopters and accompanying defence systems to the Nigerian military.

Reuters had quoted three sources as saying the deal was blocked over concerns about possible human rights abuses by the Federal Government.

 

But speaking with the News Agency of Nigeria (NAN) on Friday, the Minister of Information and Culture, Alhaji Lai Mohammed, described the reports as “fake news”.

 

The minister said there was no contract of such nature between Nigeria and the US.

“There is no contract of arms between the Federal Republic of Nigeria and the United States of America today apart from the 12 Super Tucano Attack Helicopters of which six had been delivered.”

 

“We are quite satisfied with the progress and cooperation that we received from the government of the US on this issue.

 

“As a matter of fact, six of the Tucano helicopter will be launched on August 3, this year.

 

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NCC, telecom firms agree on 5G deployment

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All appears set for the deployment of 5G as the Nigerian Communications Commission and major telecoms companies have agreed on the guidelines.
The instruments are the Annual Operating Levy Regulations and the Frequency Spectrum (fees and pricing) Regulations.
The agreement came after a public inquiry organised by the NCC on the two key instruments at its headquarters in Abuja on Thursday, which was attended by Executive Vice Chairman of NCC, Prof Umar Danbatta and representatives of major telecoms companies such as Airtel Nigeria, MTN Nigeria, Glo Mobile Network, 9Mobile, and other stakeholders.

The 5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users.

While Airtel Nigeria agreed with key issues regarding the instruments, MTN Nigeria pleaded for extension of timeframe.
But Danbatta assured all stakeholders that frequency spectrum would be assigned and managed in a way that ensures fair pricing and efficient deployment of attendant services.
According to him, the two instruments were not only tailored to meet the challenges of the industry but ensure that all stakeholders are carried along as the country prepares for deployment of 5G technology.
Danbatta said, “More importantly, this Public Inquiry is precursor to the Commission’s current drive to ensure efficiency in spectrum management and the unveiing of next generation services through varied enablers.
“It is in that regard that the Commission issued a Spectrum Trading Guidelines in 2018, to ensure frequency spectrum is readily available to licensees through an effective process.
“Furthermore, the commission has commenced the process for deployment of Fifth Generation (5G) Technology in Nigeria and is driving the provision of such ubiquitous services on making Frequeney Spectrum available to its licensees.
“The efficacy and reliability of these initiatives will be hinged on proper market valuation of the frequency spectrum and fair assessment of levies.”

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Inflow of foreign capital drops by 54% to $875.62m

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The total value of capital importation into Nigeria dropped to $875.62 million in the second quarter (Q2) of 2021, the National Bureau of Statistics has said.
According to the NBS, the figure represents a 54.06 per cent drop compared to the $1.91 billion in the first quarter (Q1) of 2021.

It stated this in its latest report titled, ‘Nigerian capital importation (Q1 & Q2 2021)’.
In 2020, Nigeria’s capital importation plunged by 59.65 per cent at $9.68 billion – the lowest level in four years.

“The largest amount of capital importation by type was received through portfolio investment, which accounted for 62.97% ($551.37m) of total capital importation,” the report stated.
“It is followed by other investments, which accounted for 28.13% ($246.27m) of total capital imported and Foreign Direct Investment (FDI), which accounted for 8.90% ($77.97m) of total capital imported in Q2 2021.”
Capital importation into the banking industry dominated in Q2 reaching a total of $296.51 million, followed by financing with $205.88 million and shares with $194.59 million.
In both Q1 and Q2, brewing, fishing, hotels, tanning and weaving sectors had no record of capital imports, the report added.
Similarly, only Lagos, Ogun and the federal capital territory (FCT) recorded capital inflows across Nigeria in Q2.
Lagos emerged as the top destination of capital investment in the second quarter with $780.06 million, Abuja had $95.26 million, while Ogun had $0.3 million.
By banks, foreign firms emerged as the top capital investment in Nigeria in Q2. Stanbic IBTC recorded $310.21 million, Standard Chartered was second with $282.37 million, then Citibank ($94.15 million).
The report also stated that “the United Kingdom emerged as the top source of capital investment in Nigeria in Q2 2021 with $310.26m.”

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