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July 30, 2023/Research & Strategy
Futureview Financial Services
The Central Bank of Nigeria’s Monetary Policy Committee (MPC) convened its fourth meeting on July 24th-25th, 2023. Unlike previous meetings, the decisions this time were not unanimous. Six out of eleven members voted for a Monetary Policy Rate (MPR) increase, with four supporting a 25 basis points rise and two pushing for a 50 basis points hike.
Eventually, the MPC settled on a cautious approach, raising the MPR by 25 basis points to 18.75%. The asymmetric corridor was also adjusted to +100/-300 basis points around the MPR. This decision aligns with analysts’ forecasts, given the inflationary pressures and global trends of slowing rate hikes. The adjustment in the corridor aims to encourage banks to use the Standing Deposit Facility (SLF), a contractionary measure.
The implications of higher MPR and tighter corridor affect various economic agents. Bank lending rates may rise, impacting credit demand and consumption. Manufacturers already dealing with higher import duties due to exchange rate depreciation will now face higher funding costs, possibly leading to layoffs.
As a result, economic growth for FY 2023 is expected to decline to 2.9%. The acting CBN Governor’s statement denying the intention to liberalize the exchange rate market raises questions about future FX policy. Despite the initial suggestion of unifying rates, the lack of convergence is attributed to seasonal FX demand and retained demand management measures by the CBN.
IMF Keeps Nigeria’s 2023 Growth Projection Steady at 3.2%
The International Monetary Fund (IMF) has decided to keep Nigeria’s growth forecast for 2023 unchanged at 3.2%, while projecting a decrease in growth for Sub-Saharan Africa overall this year. According to the IMF’s latest World Economic Outlook (WEO) titled ‘Near-Term Resilience Persistent Challenges,’ Sub-Saharan Africa is expected to witness a growth rate of 3.5% in 2023, followed by a recovery to 4.1% in 2024.
However, the IMF warns that Nigeria’s growth prospects for 2023 and 2024 are anticipated to gradually decline, consistent with the projections made in April. The primary contributing factor to this decline is the security concerns prevailing in the country’s oil sector. In the report, the IMF states that, “In sub-Saharan Africa, growth is projected to decline to 3.5% in 2023 before picking up to 4.1% in 2024. Growth in Nigeria in 2023 and 2024 is projected to gradually decline, in line with April projections, reflecting security issues in the oil sector.”
Additionally, the IMF notes that South Africa’s growth is expected to decline to 0.3% in 2023, with power shortages being a significant factor. However, the forecast for South Africa has been revised slightly upward by 0.2 percentage points since the April 2023 WEO, attributed to the resilience in services activity observed in the first quarter. In summary, the IMF’s World Economic Outlook reveals that while Nigeria’s growth forecast remains steady for 2023, the overall outlook for Sub-Saharan Africa suggests a decrease in growth. Nigeria’s economic prospects for the coming years are expected to face challenges due to security issues in the oil sector, while South Africa grapples with power shortages affecting its growth trajectory.
Equities Plummet 1.42% amid 25bps MPR Surge and Major Stocks’ Earnings Slump
The Nigerian equities market commenced the trading week on a positive note, attracting a significant N144 billion investment with the NGX All-Share Index (NGXASI) rising by 41bps to reach 65,268.28 points at the close on Monday. This momentum carried over into the second session as the market sustained its positive stance. Read More