The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to reduce the Monetary Policy Rate by 100 basis points, from 12.5 percent to 11.5 percent.¹ Other decisions taken by the MPC includes the retention of Cash Reserve Ratio (CRR) at 27.5 percent and retaining the liquidity ratio at 30 percent. These decisions were made in support of driving price stability and output growth. The MPC aims to use these policies to help reduce cost of capital in order for businesses to be able to afford loans. While the reduction in the MPR is expected to reflect in the interest rate of commercial banks, the banking sector may not be well-positioned to provide affordable loans. Considering that loans and advances to the oil sector accounts for about 30 percent of the risk assets in the banking industry, the disruption in the oil sector is likely to affect the ability of these companies to service their loans. Furthermore, banks are already being encouraged to offer debt moratorium by restructuring existing loans combined with the already high cash reserve ratio, making it difficult for them to make loans available. As such, revisions to CRR should be considered at the next MPC meeting.
October 27, 2020
Nigeria Economic Update (Issue 39)
Crude oil price experienced a mixed week from November 18 to November 25, 2016. Specifically, OPEC basket price and Brent crude price fluctuated, to a daily average of $44.6 (from $42.33)and $48.3 (from $46.86)per barrel respectively. The present oil volatility is as a result of sell-offs, attributable to speculations/fears of an insufficient production cut by OPEC (in its bid to control oversupply) - a deal scheduled for its next meeting on November 30th 2016. This speculations have arisen due to the reluctance of major OPEC member country (Saudi Arabia) to participate in the potential oil cut dealwhich could exert a downward pressure on oil prices. However, oil prices should rise if OPEC members agree to the oil cut deal. Irrespective of the outcome of the meeting, Nigeria is exempted from the potential crude oil cut. Thus, it will be optimal for the government to act quickly to address the insurgence in the Niger Delta region, in order to raise domestic oil production as much as possible.
Recently released report by Nigeria Extractive Industries Transparency Initiative (NEITI)shows a significant decline in revenue allocation across the three tiers of government for 2016H1 (January to June). Specifically, total disbursements dropped (year-on-year) by 30.45 percent to N2.01 trillion in 2016H1. The drop in revenue allocations is accountable to the decline in both oil and non-oil revenue. While lower oil revenue was triggered by the drastic fall in oil price and production in 2016H1, lower non-oil revenue was driven by the decline in tax revenue occasioned by contraction in economic activities in the review half-year.