Expectations are high as the Central Bank of Nigeria (CBN) commences its 268th Monetary Policy Committee (MPC) meeting. Note that the MPC meeting is the first to be held since the Central Bank’s Governor, Godwin Emefiele officially began another five-year term in the office.
The recent events (domestic and global) are expected to guide the decisions of the MPC. At its last meeting, the CBN’s highest monetary policy decision-making body (MPC) decided to hold all rates, citing certain headwinds for its decisions.
Highlights of the last meeting: At the last meeting, all the key rates were left unchanged. Basically, the MPR was kept at 13.50%, while other parameters were held as follows:
- the asymmetric corridor of +200/-500 basis points around the MPR was retained;
- CRR was held at 22.5%; and
- the Liquidity Ratio was also kept at 30%.
While explaining the reasons for holding rates, the MPC noted that lowering rates would aggressively restart the capital activities, and stimulate growth. On the other hand, MPC noted there was a need to restrain from loosening in order not to exacerbate inflationary pressures.
What MPR, CRR and Liquidity ratios mean: MPR is the interest rate at which CBN lends to commercial banks.
- The MPR is the benchmark against which other lending rates in the economy are pegged and is usually used as an instrument to moderate inflation in the economy.
- CRR simply refers to the ratio of customers’ deposits (i.e. your money in the bank) which banks are expected to hold as cash or keep with the CBN.
- Liquidity ratio refers to the amount of highly liquid assets that banks should hold in order to meet their financial obligations to customers.
Will the CBN alter rates this time? Financial experts have argued that the recent move by the CBN, ordering all banks to maintain a minimum loan-to-deposit ratio of 60% by September 2019, may not be an important factor in the MPC’s decision for now.
Since the apex bank held all rates in the last meeting, most experts expect the same thing to happen, while others project that the CBN will cut rates by 50 points.
- Financial expert and CEO, AfriSwiss Capital Assets Management Limited, Kalu Aja, expects CBN to hold rates.
“Inflation came unexpectedly down last month. CBN has been pushing banks to lend, but still needs to keep MPR high to attract foreign Portfolio Inflow. I project CBN will keep rates. Minor cuts in MPR won’t stimulate lending. The problem is more than interest rates.”
- Similarly, the Chief Economist for Businessday, Nonso Obikili, expects CBN to hold rates.
“I expect CBN to hold rates. There is room to cut, given the action by other global central banks but I don’t think they will cut anyway. The policy of the Central Bank encouraging commercial banks to lend to the real sector is not credible to alter rates. I suspect the CBN will continue to try and use other non-interest rate measures.”
- Also weighing in, financial expert and Founder of Nairametrics, Ugodre Obi-Chukwu, expects a hold of rates and further stresses that the economy needs more than the CBN just encouraging commercial banks to loan to the real sector, but instead a “push” is required.
“Concerning the CBN policy on encouraging commercial banks to loan to the real sector, it’s not encouragement we need, a big push is required. I expect CBN to hold rates.”
- Financial market expert, Onome Ohwovoriole, states that in the event of inflation dropping again in July, the CBN may consider rates cut in its next MPC meeting. He, however, expects a hold.
“If inflation drops in July, the MPC may consider cutting rates. On the CBN policy to encourage lending to the real sector, I don’t think it will influence the decision. They need a few months to see how effective that would be, then decide on cutting in response.”
On the other hand, FSDH expects a rate cut: The Financial Security Deposit Housing (FSDH) anticipates a-50 basis point reduction in the Monetary Policy Rate (MPR), as well as a possible adjustment to the asymmetric rates around the MPR.
According to the FSDH in its policy options report, the development in the global economy also favours an interest rate cut in the short term.
“While considering FSDH Research notes, there are a number of structural challenges in the economy at the moment that can reduce the effectiveness of the monetary policy. There are strong indications that the MPC members may vote to reduce the MPR to 13%.
The market should not be surprised if the MPC also announces a reduction in the rate of the Standing Deposit Facility (SDF) of the banks with the CBN. It is possible that the MPC will maintain the Liquidity Ratio and CRR at the current level.“
Nairametrics Research in the meantime expects the MPC to leave all rates unchanged. While the June inflation report shows a slowdown, we expect the CBN to observe the inflationary pressure to ease off further into the third quarter to consider another rate cut.
Agip shut oil facility in Bayelsa due to oil spillage, environmental pollution reported
Agip on Wednesday confirmed an oil leak, resulting in a shutdown.
The Nigerian Agip Oil Company (NAOC) has confirmed the shutdown of its Idu oilfields at Egbebiri settlement within Biseni in Yenagoa Local Government Area in Bayelsa, due to an oil spillage.
A Joint Investigative Visit (JIV) report on the incident said that the leakage at the facility could be traced to equipment failure due to a rupture at the wellhead.
According to a report from the News Agency of Nigeria (NAN), Eni, the parent company of NAOC, in a response statement, said the facility was shut down to prevent further damage to the environment.
What Eni is saying
An Eni spokesperson on behalf of the Italian Energy firm, in a statement, said, “As soon as the incident was reported, we activated our oil spill response, shut in the well, and notified government regulatory agencies.
“The Joint Investigation Visit (JIV) was carried out on 09/05/2021, with the participation of community representatives and the government regulatory agencies.
“The event occurred within the Company’s wellhead location which is paved and walled round. There is no significant third-party impact,” Eni stated.
Environmental Rights Group reports environmental degradation
An environmental rights group, Environmental Rights Action/Friends of the Earth Nigeria (ERA/FoEN), however, said that the incident which discharged crude and associated gas had severely polluted the environment.
The Non-Governmental Organisation said that a visit to the spill site showed pictorial evidence of the crude spreading beyond NAOC’s right of way as nearby vegetation were affected as a result of the crude impact.
The Head of Field Operations at ERA/FoEN, Mr Alagoa Morris, in a field report on the spill said the Idu fields was notorious for frequent spills caused by equipment failure.
He said, “The people of Egbebiri in Biseni kingdom have experienced several oil spills over the years. And all the oil spill incidents documented by the Environmental Rights Action/ Friends of the Earth Nigeria (ERA/FoEN) in this community environment have occurred as a result of equipment failure and on Wellheads.
“ERA/FoEN has had cause to visit the environment of Idu Well 5 and 11 located within the same place in the past and it has always been Idu Well 11 spewing crude oil into the environment.
“Available records from ERA/FoEN indicate that there have been previous oil spills from this particular Idu Well 11 operated by Agip. Before concluding this Field Report, ERA/FoEN confirmed that Joint Investigation Visit (JIV) was carried out on Sunday, 9th May 2021.
“This is why the official Spill Reference No 2021/LAR/028/058 is indicated in this report; sourced from the JIV report. Cause of spill was attributed to equipment failure,” ERA/FoEN stated.
The report quoted a resident of the community simply identified as Georgie as saying that the spill incident of May 7 spilled oil from around 10 p.m till about 8 a.m the next day before the leak was stopped adding that the level of damage was enormous.
What you should know
It can be recalled that in a similar circumstance, Shell Petroleum Development Company reported an oil pipeline spillage at its Okordia-Rumekpe 14-inch crude truck line, discharging about 213 barrels of crude oil into the Ikarama community in Bayelsa State and polluting about 1.34 hectares of land.
This new leakage is the latest in a series of oil spillages by the multinational oil exploration and production companies, which has put them in conflict with the host communities.
Nigeria records system collapse during holidays
Nigeria’s national electricity grid collapsed on Wednesday morning.
The Nigerian grid has experienced a partial collapse, dealing a blow for stay at home Nigerians during the holidays.
This was confirmed in a statement by the Eko Electricity Distribution Company (EKEDC), as seen by Nairametrics.
What EKEDC is saying about the grid collapse:
“Dear customer, there is a partial system collapse on the National Grid. Our TCN partners are working to restore supply immediately. Please bear with us.”
According to latest reports, partial restoration of power is already occurring across the country.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Seplat Petroleum Development Company postpones Q1 2021 dividend payment date.
- FMDQ approves quotation of MTN’s Commercial Paper worth N73.5 billion.
- MTN Nigeria issues a 7-Year Series 1 bond worth N110 billion.
- Caverton Offshore Support Group reports profit after tax of N520 million in Q1 2021.
- Okomu Oil proposes dividend worth N6.7 billion for shareholders.