NBS statistics puts MPC under pressure says Financial Derivatives

Financial Derivatives Company (FDC), in its monthly report for the month of August has said that the report by the National Bureau of Statistics (NBS) on Wednesday that the country is now in a recession, has put the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) under pressure as it holds its fifth meeting between September 19 and 20, 2016.

According to FDC, with the NBS report that says the inflation has increased to an 11-year high, the CBN will be under intense pressure on the direction to adjust interest rates.

“This comes just after it increased policy rates to 14% per annum in July, in spite of negative growth and increasing unemployment. An important fact is that with the average Treasury Bill stop rate for 182- day and 364- day at 17.8% and 18.5%, respectively, in August, the MPR may be redundant as the anchor rate.”

It added that the GDP report for second quarter 2016 shows a negative growth of (-2.06%). This, it says, is weaker than expected. “With inflation slowing, and Nigeria in recession, the CBN is more likely to pursue an accommodative stance at its next MPC meeting”, the report added.

According to Renaissance Capital (Rencap), the negative GDP growth is likely to linger for a long time on account of agriculture output likely to be affected by floods and production cuts in the oil industry due to vandalism and militancy in the Niger Delta.

Rencap specifically predicted that economic growth would further decline 1.4 percent in the second half of 2016.

“We revise down our 2016 growth projection to -1.4%”, said Rencap in its September update released Thursday.

Should this forecast pan out as predicted by Rencap, the country could well be on its way to experience an enduring recession.

The NBS announced 2.06 percent drop in GDP in second quarter of 2016 after a 0.36 drop in the preceding quarter to signal that the country has entered a recession, meaning “a negative economic growth for two consecutive quarters”, also known as “a business cycle contraction which results in a general slowdown in economic activity”.

In making its forecast, Rencap said the negative growth would be mainly due to hiccups in agriculture, which is the biggest contributor to GDP and a continued setback in oil output. The NBS had also fingered the oil sector while associating the decline to a weaker currency.

“We are likely to see the biggest contributor to growth, crop production, and slowdown in 2H16 because of an increased risk of flooding, according to a famine early warning network. Oil output is likely to remain depressed at c. 1.6mbd in 2H16, at best, vs 1.96mbd in 5M16”, according to Rencap.