•MPC may delay interest rate hike as elections draw close
Federal revenue collected in the third quarter of 2018 stood at N2.524 trillion, the Central Bank of Nigeria’s (CBN) third quarter economic report, has shown.
The report was posted on its website last night, just as some chief executives predicted that notwithstanding the sluggish economic growth as well as pressure on the country’s external reserves, the Monetary Policy Committee (MPC) of the CBN, which commences its 264th meeting tomorrow would leave its key monetary policy tools unchanged as the 2019 elections draw nearer.
According to the latest CBN report, the federal revenue collected in the third quarter of 2018, was lower than the proportionate quarterly budget estimate of N3.321 trillion by 24 per cent.
It, however, rose above the receipts in the preceding quarter by 8.9 per cent.
“The decline in federally-collected revenue (gross) relative to the proportionate quarterly budget estimate was attributed to the shortfall in both oil and non-oil revenue components in the review period,” the report explained.
The report showed that gross oil receipt, at N1.394 trillion or 55.2 per cent of the total revenue, was below the proportionate quarterly budget estimate by 27.4 per cent.
It also fell marginally below the receipts in the second quarter of 2018 by 0.3 per cent.
Despite the increase in crude oil price, oil revenue declined relative to the proportionate budget estimate, owing to shortfalls in crude oil production and exports, arising from leakages and shut-ins/shut-downs at some NNPC terminals.
On the other hand, non-oil revenue, at N1.130 trillion or 44.8 per cent of total, was below the proportionate quarterly budget estimate of N1.400 trillion by 19.3 per cent. It was, however, above the level in the preceding quarter by 22.8 per cent.
The lower non-oil revenue relative to the proportionate quarterly budget estimate was due to the shortfalls in receipt from federal government independent revenue and VAT in the review period.
The report stated that despite the decline in domestic oil production, there was improvement in foreign exchange revenue from oil export in the third quarter of 2018, on account of the favourable international price of crude oil.
The development was, however, moderated by the significant decline in inflow from non-oil exports.
Consequently, aggregate foreign exchange inflow through the CBN amounted to US$12.95 billion, indicating a 6.3 per cent decline below the level at end-June 2018.
It, however, showed an increase of 8.1 per cent, over the level in the corresponding period of 2017.
The decline, relative to the preceding quarter, reflected, mainly, the fall in inflow from non-oil sources.
Aggregate outflow through the CBN amounted to US$16.93 billion in the third quarter of 2018. This represented 27.4 per cent and 81.3 per cent increase, above US$13.29 billion and US$9.34 billion in the preceding quarter and the corresponding period of 2017, respectively. The increase in outflow relative to the preceding quarter was attributed to 32.2 per cent and 28.0 per cent increase in public sector payments and interventions in the foreign exchange market.
Overall, a net outflow of US$3.98 billion was recorded through the bank, compared with US$0.53 billion and US$2.64 billion in the second quarter of 2018 and the corresponding period of 2017, respectively.
MPC May Delay Interest Rate Hike as Elections Draw Close
Meanwhile, some analysts that spoke with THISDAY last night said they did not see the central bank hiking interest rate, suggesting it would rather deploy its open market operations (OMO) and primary market auction to continue to control the volume of liquidity in the system as well as attract foreign investors.
The Managing Director of Afrinvest Securities Limited, Mr. Ayodeji Ebo, said the MPC would at the end of its meeting, maintain status by keeping the major monetary policy tools unchanged.
He said, “Beyond that, there are other instruments for the CBN to guard rates, which are the OMO and primary market auction. Those have proven to be more effective because the OMO rates would have more impact in terms of yields on fixed income and the main objective is to attract and keep foreign investors as well as to reduce the liquidity in the system as much as possible.
“But if you increase MPR, it has direct impact on maximum lending rate. So, that may destabilise the equilibrium. But using OMO will not affect lending.”
He, however, pointed out that the MPC members would be concerned about the weak growth being experienced in the economy.
According to him, the MPC might also try to persuade government to accelerate the implementation of the 2018 budget and would try to re-access the real sector support facility (RSSF) to see how effective it has been.
To the Chief Executive Officer of Coronation Merchant Bank, Mr. Abubakar Jimoh, with the situation the economy is presently, where interest rate has gone up in some advanced economies and oil prices are down, “all indications show that the central bank would at the minimum hold rate, or they would tighten further.”
He added, “How they would tighten, I don’t know, but there are so many instruments that are available to the central bank.
“The CBN governor has made it clear that they have the responsibility to ensure that there is price stability in the economy. Given the fact that we are also approaching an election period, I do not see any indication that shows that they should relax policy at this time.”
However, analysts at FSDH Merchant Bank believe members of the MPC “may decide to delay an increase in the monetary policy rate until their January 2019 meeting.”
The firm added in a report, “The CBN may continue to use the conduct of OMO to manage the temporary liquidity in the financial system that may affect price stability.”
Although FSDH Research noted that despite the recent drop in the price of crude oil on the international market, the moderately strong global growth would sustain global crude oil prices around US$70/barrel in the short-term.
“FSDH Research expects the Federal Open Market Committee (FOMC) of the US Federal Reserve to raise the Federal Funds Rate (Fed Rate) by 0.25 per cent when the committee meets in December 2018.
“An increase in the Fed Rate may further place additional demand pressure on foreign exchange in Nigeria and possibly increase capital flight from emerging markets. Thus, a rate cut in Nigeria is not appropriate under these situations.
“The short-term forecast for the Nigerian economy shows that economic growth remains fragile.”