According to the Central Bank of Nigeria, the primary market recorded a rise in interest rates for the first time in 3 months. The rise was recorded in the recent 13th May auction as interest rates rose to 2.5% (+35%) and 2.85% (+16%) for the 91-day and 182-day tenor respectively when compared to the preceding auction1. The rise in interest rates can be attributed to lower demand given that investors are seeking for safer assets in more stable currencies in these unprecedented times. Bearing in mind that the government aims to mobilize domestic funds following a shift in debt sourcing, this will increase the cost of borrowing for the government. In addition, considering that the interest rate on T-bills is the benchmark interest rate, the rates of other commodities including bonds and equities are expected to rise. The rise in interest rate will increase the need to save for households, thus lowering consumption and increase the cost of borrowing for firms, thus reducing investment. The overall effect will be a negative impact on economic growth.
June 3, 2020
Nigeria Economic Update (Issue 20)
FDI, FPI and other Investments: Portfolio investment has continued to fall rapidly since 2014, while FDI inflows remain subdued since 2010
OPEC basket price increased (Week-on-Week) by 1.6 percent to $49.45 per barrel on March 31, 2017- the first increase recorded in three weeks. Also, Bonny light rose by 4.7 percent to $51.92 per barrel. The rise in crude oil prices reflects demand-side expansion, consequent upon a myriad of factors: slower rise in USA crude reserves, huge supply disruptions in Libya, and the prospective extension of OPEC supply cut deals in member countries. The strengthening of crude oil price amid calm in the Niger Delta oil region, presents positive outlook for the Nigerian economy. However, given the adverse implications of sole dependence on crude oil revenue, the government should avoid returning to the norm and make efforts to intensify investments in other key sectors of the economy