In the just concluded week, the Central Bank of Nigeria (CBN) depository corporations survey showed a 0.45% month-on-month (m-o-m) decline in Broad Money Supply (M3 money) to N33.98 trillion in February 2020.
This resulted from a 15.20% decrease in Net Foreign Assets (NFA) to N5.65 trillion which and a 3.13% increase in Net Domestic Assets (NDA) to N28.33 trillion. On domestic asset creation, the
increase in NDA was chiefly driven by a 2.37% m-o-m increase in Net Domestic Credit (NDC) to N36.66 trillion.
Further breakdown of the NDC showed a 7.77% m-o-m increase in Credit to the
Government to N9.97 trillion and a 0.48% rise in Credit to the Private sector to N26.70 trillion.
On the liabilities side, the 0.48% m-o-m decrease in M3 Money was driven by the 15.26% fall in treasury bills held by money holding sector to N4.25 trillion, which was accompanied by a 2.10% m-o-m increase in M2 Money to N29.73 trillion.
The increase in M2 was driven by a 2.74% rise in Quasi Money (near maturing short term financial instruments) to N19.30 trillion and a 0.93% increase in Narrow Money (M1) to N10.43 trillion (of which Demand Deposits increased by 1.98% to N8.64 trillion, although currency outside banks, moderated by 3.84% to N1.79 trillion).
Reserve Money (Base Money) rose sharply m-o-m by 14.78% to N9.63 trillion as Bank reserves rose significantly m-o-m by 21.22% to N7.45 trillion, partly offset by a 2.79% decrease in currency in circulation to N2.19 trillion.
In another development, National Bureau of Statistics (NBS), in line with our expectations, reported a 12.26% rise in annual inflation rate for the month of March; higher than 12.20% recorded in February.
The increase in inflation rate was partly due to the depreciation of the Naira against the USD.
At the Bureau de Change and the parallel markets, two months moving averages of their foreign exchange rates rose (Naira depreciated) y-o-y by 2.31% and 2.54% to N365.57/USD and N369.39/USD respectively in March 2020.
Hence, imported food index rose by 16.20% (higher than 16.14% in February). Similarly, food inflation rate rose to 14.98% (higher than 14.90% in February); while core inflation rate increased to 9.73% (from 9.43% in February).
The rise in food inflation was caused by increases in prices of meat, fish and vegetables among other things.
On the other hand, core inflation was driven by rise in prices of pharmaceutical products, hospital services, clothing and footwear as well as transportation.
On a monthly basis, annual inflation rate climbed to 0.84% in March (from 0.79% in February), as imported food inflation index rose by 1.27%.
Also, food and core inflation rose to 0.94% and 0.80% (from 0.87% and 0.73% in February) respectively.
Although the objective of CBN to stimulate real sector financing by reducing interest rates and increasing loan to deposit ratio of banks to 65% has increased net domestic credit, there remains much to be desired for output growth.
In fact, in the first two months of 2020, manufacturing and non-manufacturing business witnessed slower expansion; with non-manufacturing businesses recording contraction in February – the first in a long while.
The situation is further exacerbated by the extended lockdown in key economic regions such as Lagos and Ogun states, and several other states, on account of COVID-19. Hence the need for much needed economic stimulus.
Meanwhile, we anticipate a sustained increase in inflation rate in April as food prices are expected to rise amid ongoing planting season.
This is in addition to and expected depreciation of the local currency as the dwindling external reserves, amid low global crude oil price, will continue to exert pressure on the exchange rate and market prices of imported goods.