In line with our expectation, March headline inflation rate further moderated to 11.25% year-on-year (from 11.31% in February 2019), printing three consecutive months of decline. The sustained moderation in annual inflation rate was chiefly driven by consistent decrease in core inflation rate as it grew slower (on an annual basis, to 9.46% from 9.80% and a monthly basis, to 0.53% from 0.65%). This was partly driven by y-o-y fall in the costs of transport (-0.18%), clothing & footwear (-0.08%) and energy cost (-0.05%). Also, food inflation rate declined marginally to 13.45% y-o-y from 13.47% in February 2019.
Food prices, especially in Ogun, Bauchi and Edo States moderated y-o-y to 11.55%, 11.82% and 12.08% in March 2019 respectively. However, the pressure on general price level of food rose month-on-month (m-o-m) to 0.88% (higher than 0.82% in February 2019), amid planting season which commenced in March. Also, change in consumer price index for imported food rose m-o-m by 1.22% to 298.06 points from 294.48 points in February 2019, despite monthly average appreciation of the Naira against USD in most forex market segments (FX rate fell m-o-m by 0.78% to N357.10/USD at the BDC market).
In the same vein, Inflation rate in the urban area dropped y-o-y to 11.54% (from 11.59%) as well as in the rural area, to 10.99% (from 11.05%) in March 2019). In another development, the Central Bank of Nigeria’s (CBN) depository corporations survey, released recently, showed 3.22% m-o-m increase in Broad Money to N34.79 trillion in February 2019, from N33.72 trillion in January 2019. This resulted from a 11.80% m-o-m rise in Net Domestic Assets (NDA) to N17.77 trillion accompanied by a decrease of 4.44% m-o-m in Net Foreign Assets (NFA) to N17.02 trillion. On domestic asset creation, the increase in NDA resulted from a m-o-m rise of 6.57% in Net Domestic Credit (NDC) to N30.52 trillion, but was offset by a 0.04% m-o-m rise in Other Liabilities (net) to N12.74 trillion. Further breakdown of the NDC showed a 11.42% m-o-m increase in Credit to the Government to N6.35 trillion and an increase of 5.37% in Credit to the Private sector to N24.16 trillion.
On the liabilities side, 3.22% m-o-m rise in Broad Money Supply was chiefly driven by 18.83% m-o-m increase in treasury bills held by money holding sector to N8.23 trillion but was offset by 0.98% m-o-m decrease in Narrow Money to N11.03 trillion (as Demand Deposits which fell by 2.22% to N9.19 trillion offset the effect of currency outside banks which rose by 5.70% to N1.84 trillion) and a 0.74% m-o-m moderation in Quasi Money (near maturing short term financial instruments) to N15.50 trillion.
Reserve Money (Base Money) decreased m-o-m by 4.30% to N7.17 trillion as Bank reserves declined m-o-m by 8.47% to N4.58 trillion despite a 4.75% m-o-m rise in currency in circulation to N4.46 trillion. Meanwhile, analysis of the Q1 2019 Credit Conditions Survey released by CBN showed that availability of secured and unsecured credit to households as well as credit to corporate firms increased in Q1 2019 amid lenders’ optimism for better economy which boosted their risk appetite.
This is expected to continue in Q2 2019. However, demand for secured households credit decreased in Q1 2019 as lenders tightened the credit scoring creteria. Nevertheless, lenders still reported increased demand for corporate credit from all firm sizes in the quarter under review, which was expected to continue into the next quarter, given the lower default rates printed by corporates in Q1 2019. We note the 5.37% increase in credit to the private sector, which was fairly commendable.
However, the higher rate of increase in credit to Government showed that despite the moderation in Monetary Policy Rate (MPR) to 13.50% and the declining interest rate environment, the private sector still experienced crowding out effect as Deposit Money Banks continued to play safe despite the recorded improvement in loan performance.