In the just concluded week, data released from the Central Bank of Nigeria (CBN) depository corporations survey showed a5.21% year to date(YTD) significant risein Broad Money Supply (M3 money) to N36.59trillion in Novemeber 2020.
This resulted from a 34.78% increase in Net Foreign Assets (NFA)to N7.82trillionand a0.72% increase in Net Domestic Asset (NDA)to N28.76trillion. We witnessed a 10.90% y-t-d rise in Net Domestic Credit (NDC) to N40.12 trillion in November 2020despite the marginal decline in Net Domestic Asset.Further breakdown of the NDC showed a 13.73% y-t-d increase in Credit to the Government to N10.79trillion; also, Credit to the Private sector roseby9.89% to N29.31trillion.
On the liabilities side, the significant5.21% y-t-d increasein M3 Money was chiefly driven by a 26.83% rise in M2 Money to N36.50 trillion, but was partly offset by the 98.62% y-t-d decline in treasury bills held by money holding sector to N82.59 billion in November 2020. The increase in M2 was propelled by a 40.70% rise in Narrow Money (M1) to N14.82trillion (of which Demand Deposits increased by 47.63% to N12.56trillion, and currency outside banks rose by 11.54% to N2.26trillion), as well as a 18.82% increase in Quasi Money (near maturing short term financial instruments) to N21.68trillioninNovember 2020.
Reserve Money (Base Money) rose sharply y-t-d by 76.58% to N15.31trillion as Bank reserves increased y-t-d by 98.06% to N12.33trillion, even as currency in circulation increased by 8.87% to N2.66trillionin November 2020.In another development, the Monetary Policy Committee (MPC) would be concluding its 277th meeting on Tuesday,January 26, 2021as it decides on the direction of the Monetary Policy Rate (MPR) which was reduced by 100 basis points (bps) to 11.50% in September (from 12.50% printed in August after previous cut of 100 bps from 13.50% in May) while also adjusting the asymmetric corridor to +100 bps from -700 bps (from +200 bps and -500 bps) around the MPR.Also, in November 2020, MPC left the MPR unchanged at 11.50%. Other parameters such as Cash Reserve Ratio (CRR)and Liquidity Ratio were also retained at 27.50%and 30%respectively.
The Committee’s decision to hold rate in November2020 was amid its efforts, in collaboration with the fiscal authority, to lift Nigerian economy out of recession; hence, prioritizing economic growth over the rising prices of goods and services.
Meanwhile,the West Texas Intermediate (WTI) crude price fell marginally by 0.82% w-o-w toUSD53.13a barrel even as Brent crude decreasedby0.57% to USD56.10a barrel as at Thursday, January 21, 2021.This may be against the backdrop of the news on Thursday that compliance amongst OPEC+ producers fellto 99% in December2020,from 101% compliance level in November.
However, we saw Nigeria’s crude grade (Bonny Light) price increase by 0.24% to USD55.27 a barrel as at Thursday, January 21, 2020.The 9.89% increase in credit to the private sector over the 11months period 2020 further reflects the push by
CBN to drive increased production outputin joint effort with the fiscal authority.
However, we are beginning to see a backlash of the expansionary policy stance amid rising inflation rate and weakening Naira against other currencies, especially the greenback. As the monetary authority convenes in the new week for the first MPC meeting in 2021, we expect the Committee to further maintain status quo despite pressure on the exchange rate and general price level given the need to further stimulate Nigeria’s fragile economy out of recession.
However,we note that the direction of interest rates may generally trend northwards at some point further a field in 2021 amid expected increase in borrowings by the fiscal authority to fund its budget deficit.