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Muteswan Capital Limited > Events > SUMMARY OF THE CBN ECONOMIC REPORTS

The stance of Monetary Policy in the review period remained accommodative as the Monetary Policy Rate was maintained at 13.50 per cent. On month-on-month basis, broad money supply (M3), grew by 2.2 per cent to N35,675.9 billion at End-July 2019. The development reflected the 3.4 per cent growth in domestic credit (net), which more than offset the 4.4 per cent and 3.2 per cent decline in foreign assets (net) and other assets (net) of the banking system, respectively. Over the level at End-December 2018, broad money supply (M3), grew by 6.9 per cent, compared with the respective growth of 4.6 per cent and 2.9 per cent at End-June 2019 and the corresponding period of 2018. The growth in broad money supply (M3), over the level at End-December 2018, reflected the 21.2 per cent increase in domestic credit (net), which more than offset the decline of 4.0 per cent and 22.1 per cent in foreign assets (net) and other assets (net) of the banking system, respectively.

Narrow money supply (M1), on month-on-month basis, rose by 2.5 per cent to N11,435.8 billion at End-July 2019, in contrast to the decline of 2.0 per cent and 0.3 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The rise in narrow money supply (M1) was due to the 3.3 per cent increase in its demand deposits component. Over the level at End-December 2018, (M1) fell by 2.7 per cent, compared with the respective decline of 5.0 per cent and 4.5 per cent at the end of the preceding month and the corresponding period of 2018, respectively.

Movements in banks’ deposit and lending rates were mixed in August 2019. With the exception of the 7-day deposit rate, which rose slightly by 0.01 per cent above the level in the preceding month, and the 1month deposit rate, which remain unchanged, all other deposit rates of various maturities fell from a range of 9.38 per cent – 10.42 per cent in the preceding month to a range of 9.36 per cent – 10.39 per cent in August 2019.

The weighted average prime lending rate rose by 0.17 percentage point to 15.63 per cent, while the maximum lending rate declined slightly by 0.02 percentage point to 31.06 per cent in August 2019. Consequently, the spread between the average term deposit and the maximum lending rates narrowed by 0.13 percentage point to 25.20 percentage points at End-August 2019. Similarly, the spread between the average savings deposit and maximum lending rates narrowed by 0.04 percentage point to 27.04 percentage points at End-August 2019. The total value of money market assets outstanding in August 2019 stood at N12.44 billion, showing an increase of 0.4 per cent, compared with the growth of 1.2 per cent in the preceding month. The development was attributed, wholly, to the 0.6 per cent increase in the FGN Bonds.

 Activities on the Nigerian Stock Exchange (NSE) were mixed in the month of August 2019. Federally-collected revenue (gross) was estimated at N879.39 billion in August 2019. This was below the monthly budget and the receipts in July 2019 by 29.4 per cent and 5.6 per cent, respectively. Oil and non-oil receipts (gross), at N484.75 billion and N394.64 billion in the review month, constituted 55.1 per cent and 44.9 per cent of total revenue, respectively. Federal Government retained revenue and estimated expenditure for August 2019 were N308.13 billion and N464.31 billion respectively, resulting in an estimated deficit of N156.18 billion. The predominant agricultural activities in August 2019 were harvesting of tuber crops, staple crops and legumes both in the Southern and Northern parts of the country.

In the livestock sub-sector, farmers continued with the restocking of cows, rams and birds as a result of sales made during the id-el-Kabir festivity. Domestic crude oil production was estimated at 1.93 mbd or 59.83 mb in August 2019. Crude oil export was estimated at 1.48 mbd or 45.9 mb, while the allocation of crude oil for domestic consumption was 0.45 mbd or 13.5 mb in the review month. The average spot price of Nigeria’s reference crude oil, the Bonny Light (37° API), fell by 7.8 per cent to US$61.05 per barrel in August 2019. The end-period headline inflation, on year-on-year and twelve-month moving average bases, was 11.02 per cent and 11.27 per cent, respectively, in August 2019, compared with 11.08 per cent and 11.30 per cent, in July 2019. Foreign exchange inflow into and outflow from the CBN in July 2019 were US$4.90 billion and US$6.15 billion, respectively, and resulted in a net outflow of US$1.25 billion. Aggregate foreign exchange inflow into and outflow from the economy were US$10.49 billion and US$6.47 billion, respectively, resulting in a net inflow of US$4.02 billion. Foreign exchange sales by the CBN to the authorized dealers amounted to US$4.59 billion, in the review period, compared with US$2.63 billion in the preceding month. The average exchange rate of the naira at the inter-bank, the BDC segment and the “investors” and “exporters” window were N306.92/US$, N359.00/US$ and N363.03/US$, respectively, in August 2019, compared with N306.94/US$, N359.43/US$ and N361.26/US$ in July 2019. The gross external reserve was US$42.00 billion at End-August 2019, compared with US$43.97 billion at end-July 2019. The major international economic developments and meetings of importance to the domestic economy in the review month included: The 42nd Ordinary Meeting of the Assembly of Governors of the Association of African Central Banks (AACB) held in Kigali, Rwanda on August 1, 2019.

Financial Sector Developments

Monetary and Credit Developments

Broad money supply (M3) and narrow money supply (M1) grew in July 2019. Developments in banks’ deposit rates were mixed, while lending rates generally trended upwards in the review month. The value of money market assets outstanding rose, owing, largely, to the increase in FGN Bonds outstanding. Activities on the Nigerian Stock Market were mixed in the review month.

The stance of Monetary Policy in the review period remained accommodative as the Monetary Policy Rate was maintained at 13.50 per cent. Consequently, at N35,675.9 billion, broad measure of money supply (M3), rose by 2.2 per cent at end-July 2019, compared with the growth of 0.03 per cent and 0.6 per cent at end of the preceding period and the corresponding period of 2018, respectively. The development reflected, wholly, the 3.4 per cent growth in domestic credit (net) of the banking system, which more than offset the decline of 4.4 per cent and 3.2 per cent in foreign assets (net) and other assets (net) of the banking system, respectively. Over the level at end-December 2018, broad money supply (M3), grew by 6.9 per cent at end-July 2019, compared with the respective growth of 4.6 per cent and 2.9 per cent at end of June 2019 and the corresponding period of 2018.

The growth in broad money supply (M3), reflected the 21.2 per cent increase in domestic credit (net), which more than offset the decline of 4.0 per cent and 22.1 per cent in foreign asset (net) and other assets (net) of the banking system, respectively. Narrow money supply (M1), on month-on-month basis, rose by 2.5 per cent to N11,435.8 billion at end-July 2019, in contrast to the decline of 2.0 per cent and 0.3 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The rise in narrow money supply (M1) was due to the 3.3 per cent increase in its demand deposits component. Over the level at end-December 2018, M1 fell by 2.7 per cent, compared with the respective decline of 5.0 per cent and 4.5 per cent at the end of the preceding month and the corresponding period of 2018, respectively. Quasi-money, on month-on-month basis, grew by 0.6 per cent to N16,833.1 billion at end-July 2019, compared with the respective growth of 1.8 per cent and 1.3 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The growth in Quasi money in the review month reflected the increase in time and saving deposits of commercial and merchant banks. Over the level at end December 2018, quasi-money grew by 9.9 per cent, compared with the growth of 9.2 per cent and 10.3 per cent at the end of the preceding month and the corresponding period of 2018, respectively.

Aggregate credit to the domestic economy (net), on month on-month basis, grew by 3.4 per cent to N33,412.4 billion at end-July 2019, compared with the growth of 0.4 per cent and 1.6 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The development was attributed to the increase of 20.5 per cent in net claims on the Federal Government. Relative to the level at end-December 2018, aggregate credit to the domestic economy (net), rose by 21.2 per cent, compared with the growth of 17.3 per cent at end-June 2019. It, however, contrasted with the decline of 1.7 per cent at the end of the corresponding period of 2018. Net claims on the Federal Government, on month-on-month basis, grew by 20.5 per cent to N9,138.1 billion at End-July 2019, compared with the growth of 3.7 per cent and 15.4 per cent at end-June 2019 and the corresponding period of 2018, respectively.

 The growth in net claims of the Federal Government reflected the increase in holdings of government securities by the banking system. Over the level at end December 2018, net claims on the Federal Government rose by 87.8 per cent, compared with the growth of 55.8 per cent at the end of the preceding month. It, however, contrasted with the decline of 11.1 per cent recorded at the end of the corresponding period of 2018. Relative to the level at End-June 2019, banking system credit to the private sector declined by 1.9 per cent at End-July 2019, compared with the decline of 0.5 per cent and 0.1 per cent at end-June 2019 and the corresponding period of 2018 respectively. The development was attributed, to the 3.3 per cent and 1.8 per cent fall in claims on state and local governments and the core private sector, respectively. Over the level at End-December 2018, banking system credit to the private sector grew by 6.9 per cent, compared with the growth of 9.0 per cent at the end of the preceding month

Net foreign assets (NFA) of the banking system, on month-on month basis, fell by 4.4 per cent to N17,663.3 billion at End-July 2019, compared with the respective decline of 3.3 per cent and 3.0 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The fall in NFA was, due, mainly to the 3.1 per cent and 24.2 per cent decline in foreign asset holdings of the CBN and banks, respectively. Over the level at End-December 2018, NFA fell by 4.0 per cent at End-July 2019, in contrast to the increase of 0.4 per cent and 14.6 per cent at End-June 2019 and the corresponding period of 2018, respectively. Other Assets (net) of the banking system fell by 3.2 per cent to negative N15,399.8 billion at End-July 2019, compared with the 3.1 per cent and 2.2 per cent decline at End-June 2019 and the corresponding period of 2018, respectively. The development was, due, to the fall in the unclassified assets of banks. Relative to the level at End-December 2018, other assets (net) grew by 22.1 per cent, compared with the growth of 26.1 per cent and 7.7 per cent at End-June 2019 and the corresponding period of 2018, respectively.

 Currency-in-Circulation (CIC) and Deposits at the CBN Currency-in-circulation, on month-on-month basis, fell by 0.5 per cent to N2,003.1 billion at End-July 2019, compared with the decline of 4.6 per cent and 4.0 per cent at the end of the preceding month and the corresponding period of 2018, respectively. The development relative to the preceding month, reflected the fall in its currency outside banks component. Deposits of banks and the Federal Government with the CBN, on month-on-month basis, declined, while deposits of the private sector with the CBN, rose relative to the levels at the end of the preceding month. Overall, aggregate deposit at the CBN declined by 8.1 per cent to N14,710.27 billion at end July 2019. Of the total deposits at the CBN, the shares of the Federal Government, banks and the private sector were 41.5 per cent, 37.2 per cent and 21.3 per cent, respectively. Reserve money fell by 7.5 per cent to N7,479.1 billion at end July 2019. The downward movement in reserve money reflected mainly the 0.5 per cent decline in Currency-in Circulation.

 MONEY MARKET DEVELOPMENTS

During the review period, major financial market indicators remained relatively stable due to efficient liquidity management strategy of the Bank in both the domestic and foreign exchange markets. There was liquidity pressure in the market towards the end of the month arising from provisioning and settlement for foreign exchange purchases. The liquidity pressure was moderated via Open Market Operations (OMO) auctions. Macroeconomic indices remained positive with inflation rate decelerating. Declining crude oil prices led to reduction in foreign exchange reserves. Fluctuation in domestic interbank rates were influenced largely, by the level of liquidity triggered, by inflow through fiscal disbursements, maturing Central Bank of Nigeria (CBN) bills and the Federal Government of Nigeria (FGN) securities. Market participants continued to assess the Bank’s discount windows to enable them square up their positions at the end of each business day. The Monetary Policy Rate (MPR) remained at 13.50 per cent with the asymmetric corridors at +200/-500 bpbs for lending and deposit, while the Cash Reserve Requirements (CRR) and Liquidity Ratio (LR) stood at 22.50 per cent and 30.00 per cent, respectively. The total value of money market assets outstanding in August 2019 was N12.44 billion, showing an increase of 1.4 per cent, compare with the growth of 1.2 per cent in the preceding month. The development was attributed, wholly, to the 0.6 per cent increase in the FGN Bonds outstanding.

 INTEREST RATE DEVELOPMENTS

Money market rates were generally stable and moved in tandem with the level of liquidity in the review period. Short term money market rates traded below the MPR of 13.50 per cent in the major parts of the review period. Provisional data indicated that movements in banks’ deposit and lending rates were mixed in August 2019. With the exception of the 7-day deposit rate, which rose slightly by 0.01 per cent above the level in the preceding month, and the 1-month deposit rate, which remain unchanged, all other deposit rates of various maturities fell from a range of 9.38 per cent – 10.42 per cent in the preceding month to a range of 9.36 per cent – 10.39 per cent in August 2019. The weighted average prime lending rate rose by 0.17 percentage point to 15.63 per cent, while the maximum lending rate declined slightly by 0.02 percentage point to 31.06 per cent in August 2019.

Consequently, the spread between the average term deposit and the maximum lending rates narrowed by 0.13 percentage point to 25.20 percentage points at End-August 2019. Similarly, the spread between the average savings deposit and maximum lending rates narrowed by 0.04 percentage point to 27.04 percentage points at End-August 2019. The average inter-bank rate, which stood at 6.79 per cent at End-July 2019, rose by 1.21 percentage point to 8.00 per cent at End-August 2019. The Open-buy-back (OBB) rate, which stood at 7.73 per cent in the preceding month, rose by 4.61 percentage points to 12.34 per cent at End-August 2019. Similarly, the Nigeria inter-bank offered rate (NIBOR), for the 30-day tenor, rose to 11.98 per cent in the review period, compared with 11.86 per cent at End-July 2019. With headline inflation at 11.02 per cent in August 2019, all deposit rates remained negative in real terms, while lending rates were positive in real terms

 COMMERCIAL PAPER (CP)

Commercial Paper (CP) outstanding held by commercial banks stood at N36.91 billion at the end of the review month, showing a decrease of 10.4 per cent, compared with N41.20 billion recorded in the month of July 2019. Thus, CP constituted 0.3 per cent of the total value of money market assets outstanding in the review period, same as in the preceding month. 2.3.3 Bankers’ Acceptances (BAs) At end-August 2019, BAs stood at N1.45 billion, representing a decline of 59.2 per cent. Consequently, BAs accounted for 0.01 per cent of the total value of money market assets outstanding at the end of the review period, compared with 0.03 per cent at the end of the preceding month. 2.3.4 Certificate of Deposits (CDs) Certificate of Deposits (CDs) declined by 0.02 per cent to N59.67 billion in the review period, compared with N59.68 billion in the preceding month. At that level, CDs constituted 0.5 per cent of total money market assets outstanding in August 2019, compared with level at the end of the preceding month.

 OPEN MARKET OPERATIONS

The Bank continued to intervene through the conduct of direct Open Market Operations (OMO), to realised its monetary policy objectives in August 2019. The tenors to maturity of the instruments ranged from 85 to 364 days. Total amount offered, subscribed to and allotted, stood at N360.00 billion, N681.65 billion and N115.95 billion, respectively. The bid rates ranged from 11.2500 per cent to 15.0000 per cent, while the stop rates were from 11.30000 per cent to 12.8800 per cent. Repayment of matured CBN bills was N487.59 billion, translating to a net injection of N371.64 billion.

 PRIMARY MARKET

At the Government securities market, NTBs and long-term FGN Bonds were issued on behalf of the Debt Management Office (DMO) in the review period. NTBs of 91-, 182- and 364-day tenors, amounting to N466.20 billion, N858.43 billion and N466.20 billion were offered, subscribed to and allotted, respectively. At the 91-day auction, total subscription and allotment were N92.09 billion and N56.78 billion, respectively, with the bid rates ranging from 9.0000 per cent to 12.4990 per cent, while the stop rates were 9.7000 per cent, 9.7500 per cent and 11.1000 per cent. For the 182-day auction, total subscription and allotment, were N126.98 billion and N75.44 billion, respectively. The bid rates ranged from 10.0000 per cent to 15.0000 per cent, while the stop rates were 10.6000 per cent, 11.3500 per cent and 11.5878 per cent.

 At the 364-day auction, total subscription and allotment were N649.35 billion and N334.00 billion, respectively, with bid rates ranging from 10.5000 per cent to 14.3450 per cent, while stop rates were 11.1800 per cent, 12.0000 per cent and 12.8900 per cent. On all the maturities, the stop rates ranged from 9.7000 per cent to 12.8900 per cent. 2.3.7 Bonds Market Tranches of the 5-, 10- and 30-year bonds were reopened and offered for sale in the review period. Terms to maturity of the bonds ranged from 3 years 8 months to 29 years 8 months. Total amount offered, subscribed to and allotted were N145.00 billion, N95.09 billion and N15.03 billion, respectively. The bid rates ranged from 12.75 to 15.75 per cent, while the marginal rates for the 5-, 10-, and 30-year bonds were 14.29 per cent, 14.39 per cent and 14.59 per cent, respectively. For all the tenors, the marginal rates were from 12.75 per cent to 15.7500 per cent.

 Investors showed a strong preference for the 30-year bond with total subscription of N47.21 billion, compared with N55.00 billion that was offered. This could be attributed to the renewed investors’ confidence in the market. 2.3.8 CBN Standing Facilities The commercial banks and the merchant banks continued to access the Standing Facilities window to square up their positions in August 2019. The trend at the CBN standing facilities window showed more patronage at the Standing Lending Facility (SLF) window, reflecting the liquidity squeeze in the market. Applicable rates for the SLF and Standing Deposit Facility (SDF) remained at 15.50 per cent and 8.50 per cent, respectively. The total SLF granted during the review period was N2, 867.77 trillion, (inclusive of Intra-day Lending Facility (ILF) converted to overnight repo). Daily average was N179.24 billion in the 16 transaction days in August 1 – 26, 2019. Total interest earned was N1.87 billion. The total SDF granted during the review period was N257.35 billion with a daily average of N16.08 billion in the 16 transaction days. Daily request ranged from N0.15 billion to N34.60 billion. Cost incurred on SDF in the month stood at N0.09 billion. 2.4 Banks’ Activities Total assets and liabilities of commercial banks amounted to N40,175.6 billion at End-July 2019, showing 1.4 per cent increase, compared with the level at the end of the preceding month. Funds were sourced, mainly, from sale of foreign assets, increased demand deposits and unclassified liabilities. The funds were used mainly, to increase claims on the Federal Government and private sector.

Commercial banks’ credit to the domestic economy rose by 2.3 per cent to N21,557.4 billion at End-July 2019, compared with the level at the end of the preceding month. The development was attributed to the rise in claims on the Federal Government and private sector components. Total specified liquid assets of banks stood at N14,188.73 billion at End-July 2019, representing 60.1 per cent of their total current liabilities. At that level, the liquidity ratio was 0.5 percentage point above the level at the end of the preceding month, and was 35.4 percentage points above the stipulated minimum liquidity ratio of 30.0 per cent. The loans to-deposit ratio, at 57.42 per cent, was 0.2 percentage point lower than the level at the end of the preceding month and was lower than the maximum ratio of 80.0 per cent by 22.6 percentage points. 2.5 Capital Market Developments 2.5.1 Secondary Market Activities on the Nigerian Stock Exchange (NSE) were mixed in August 2019, as the All Share Index (ASI) fell, while the aggregate market capitalization rose at the end of the review period. The turnover volume and value of traded securities rose by 8.6 per cent and 10.8 per cent, respectively, to 6.0 billion shares and N62.04 billion, in 69,801 deals, compared with 5.52 billion shares worth N56.00 billion, in 78,094 deals, at End-July 2019.

Market Capitalization

The aggregate market capitalization rose by 1.1 per cent to N26.24 trillion above N25.96 trillion recorded at End-July 2019. Market capitalization for the equities segment fell by 0.9 per cent to N13.40 trillion, and constituted 51.1 per cent of the total market capitalization, compared with N13.52 trillion, constituting 52.1 per cent of the total at the end of the preceding month (Figure 5, Table 4). 2.5.4 NSE All-Share Index the All-Share Index, which opened at 27,718.26 at the beginning of the month, closed at 27,525.81, representing a decline of 0.7 per cent, compared with the level in the preceding month. Developments in the sectoral indices were, however, mixed. With the exception of NSE Industrial index and NSE Premium index, which rose by 1.6 per cent and 1.2 per cent, respectively, all other sectoral indices finished lower in the review period. The NSE Oil/Gas, NSE-Insurance, NSE Pension, NSE-Consumer Goods, NSE Banking, NSE-Lotus Islamic and NSE AseM indices fell by 12.2 per cent, 7.7 per cent, 4.4 per cent, 4.1 per cent, 3.6 per cent, 2.7 per cent and 0.1 per cent, respectively, relative to their levels at the end of the preceding month.