MPC retains 14% Interest Rate despite GDP Growth

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  • By Anayo Ezugwu

 

DESPITE Nigerian Gross Domestic Product, GDP, growing by 1.4 percent in the third quarter of 2017, the Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, has retained the Monetary Policy Rate, MPR, at 14 percent.

The MPC on Tuesday, November 21, also retained the Cash Reserve Ratio, CRR, at 22.5 percent, the Liquidity Ratio, LR, at 30 percent and asymmetric corridor around the MPR at +200 and -500 basis points.

The National Bureau of Statistics, NBS, had on Monday, November 20, reported that the GDP growth was the second consecutive growth since the economy exited the recession in the second quarter of 2017.

The new growth rate was 3.74 percentage points higher than the rate recorded in the corresponding quarter of 2016 (-2.34 percent) and higher by 0.68 percentage points than the GDP growth rate recorded in the preceding quarter of 2017, having been revised by the statistical agency to 0.72 percent, from 0.55 percent.

The NBS report showed that economic expansion in the third quarter was solely driven by oil sector GDP, which grew by 25.89 percent in the third quarter. The report noted that the second quarter growth rate was revised, following revisions by Nigerian National Petroleum Corporation, NNPC, to oil output, culminating in revisions to Oil GDP in the period.

After contracting for five consecutive quarters, the Nigerian economy had exited the recession in second quarter of 2017, growing at 0.55 percent (now revised to 0.72 per cent).

Analysing the third quarter economic output, the NBS put real GDP growth at 8.97 percent quarter-on-quarter. In the quarter under review, aggregate GDP stood at N29,451,303.99 million in nominal terms, which was higher when compared to N26,537,651.01 million in third quarter of 2016, resulting in a nominal GDP growth of 10.98 percent. The growth was higher relative to the one recorded in third quarter of 2016 by 9.15 percent.

Real growth of the oil sector was put at 25.89 percent (year-on-year) in third quarter of 2017, representing an increase of 48.92 percent relative to the rate recorded in the corresponding quarter of 2016 and an increase of 22.36 percent compared to second quarter of 2017, which was revised from 1.64 percent to 3.53 percent. Quarter-on-quarter, the oil sector grew by 21.10 percent in third quarter of 2017.

As a share of the economy, the oil sector contributed 10.04 percent of total real GDP in third quarter of 2017, up from the figure recorded in the corresponding period of 2016 and up from the preceding quarter when it contributed 8.09 percent and 9.04 percent to GDP, respectively.

But the non-oil sector contracted by 0.76 percent in real terms during the reference quarter. This was lower by -0.79 percentage points compared to the same quarter in 2016 and -1.20 percentage points lower the figure recorded in the second quarter of 2017. In real terms, the non-oil sector contributed 89.96 percent to the nation’s GDP, lower than the share recorded in the third quarter of 2016 (91.91 percent) and in the second quarter of 2017 (90.96 percent).

The third quarter of 2017 saw the mining and quarrying sector (which consists of crude petroleum and natural gas, coal mining, metal ore and quarrying and other minerals sub-activities) record a nominal growth of 101.36 percent (year-on-year), taking into account revised second quarter of 2017 data.

Crude petroleum and natural gas recorded a growth rate of 102.79 percent, metal ore recorded 22.75 percent and quarrying and other metals recorded 27.94 percent respectively, maintaining strong year-on-year growth compared to the corresponding quarter growth rates of 2016 at 4.09 percent, 17.11 percent and 16.46 percent respectively. The mining and quarrying sector contributed 11.17 percent to overall GDP in the third quarter of 2017, higher than the sector’s contribution in the third quarter of 2016 and the previous quarter at 6.15 percent and 9.08 percent, respectively.

In real terms, the mining and quarrying sector grew by 25.44 percent (year-on-year) in the third quarter of 2017. Compared to the third quarter of 2016 and second quarter 2017, it was higher by 48.09 percentage points and 21.93 percentage points respectively. Quarter-on-quarter, the sector recorded a growth rate of 20.84 percent. The contribution of the mining and quarrying sector to real GDP in the third quarter of 2017 stood at 10.19 percent, higher than the 8.24 percent recorded in the corresponding quarter of 2016, and higher than the figure recorded in the second quarter of 2017, which was revised to 9.19 percent.

The agricultural sector grew by 12.50 percent year-on-year in nominal terms, showing an increase over the same quarter of 2016 by 5.13 percentage points but a slight decline by -0.03 percentage points when compared to the second quarter of 2017 growth rate of 12.53 percent. Crop production remained the major driver of the sector, accounting for 91.97 percent of the overall nominal growth of the sector.

In the third quarter of 2017, agriculture contributed 24.44 percent to nominal GDP, which was higher than the rates recorded in the third quarter of 2016 and second quarter of 2017 at 24.11 percent and 19.28 percent respectively.

The manufacturing sector comprising thirteen activities posted a nominal GDP growth of 10.32 percent (year-on-year) in third quarter of 2017, which was 13.25 percentage points higher than the growth recorded in the corresponding period of 2016 (-2.93 percent), but -5.65 percentage points lower than the preceding quarter’s growth of 15.97 percent. Quarter-on-quarter growth of the sector was put at 3.21 percent.

The contribution of manufacturing to nominal GDP in the third quarter was 8.55 percent, lower than the figures recorded in the corresponding period of 2016 at 8.60 percent and for the second quarter of 2017 at 9.02 percent. Real GDP growth in the manufacturing sector in the current quarter of 2017 was -2.85 percent (year-on-year), higher than the same quarter of 2016 by 1.53 percentage points and -3.49 percentage points lower than figure recorded in the preceding quarter. The growth of the sector on a quarter-on-quarter basis stood at 2.59 percent while real contribution to GDP in third quarter of 2017 was 8.81 percent.

Speaking on AIT news at 8 on Tuesday, November 21, on the GDP growth released by the NBS and retention of MPR at 14 percent by MPC, Uche Uwaleke, associate professor, Nasarawa State University, Keffi and economist analyst, said he wasn’t expecting the MPC to touch the policy parameters. He noted that the MPC might be looking at the global scene and likely normalisation of rates in the US, which of course will likely push up the interest rate in US and strengthens the Dollar.

These, he said, would have adversely affect Nigeria’s economy. “There are also the uncertainties surrounding the BREIXT. Also there is this fear that if there is drop in interest rate, you are going to exact pressure on inflation. Yes, inflation may have been coming down but food inflation still remains high at 20.31 percent. There is also fear that it will exact pressure on the foreign exchange market. The relative stability we are enjoying in the Forex market will be distorted. There is also likely negative impact on current account balance from increased importation. So these are some of the considerations the MPC must have considered.

“Again, the interest rate in the country today with inflation at 15.91 percent and the MPR at 14 percent, is negative and if you drop the interest rate you will further pull the economy into the negative territory. So I don’t see the MPC changing their position until sometime in March 2018, because their meeting in January will be also that of watching the economic growth. The economy is still fragile because it is just driven by the growth in the oil sector. The oil sector grew by 25 percent whereas the non-oil sector had a negative growth.

“A number of critical sectors are still in the negative territory, talking about transportation, construction, they are still in negative. Until we are address these other ones which in my view is what the ERGP is out to address. Until we address them we are not going to have any growth that is inclusive and not jobless as opposed to what we have in the past, he said.

On his expectations for the fourth quarter of 2017, Uwaleke said he is expecting an increase in the fourth quarter GDP rate but not as high as the growth in third quarter. “The growth we saw in the third quarter was because of the base effect. Base effect in the sense that it was based on the GDP figures that were the least in 2016 at 2.34 percent in third quarter of 2016 because it is year-on-year. Yes, we may have an increase but it may not be as high as what we have now. And that is why the government has even revised the GDP target of 2017 from 2.19 to 1.5 percent.”

 

– Nov. 24, 2017 @ 11:08 GMT /

 

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