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Macro-Economic News

Naira depreciates at 5 years forwards market, now N570 to $1

Nigeria’s 5 years onshore Non-Deliverable forward contract posted its biggest drop by plunging 27% from N413.36 to close at N569.69.

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Nigeria’s 5 years onshore Non-Deliverable forward contract posted its biggest drop by plunging 27% from N413.36 to close at N569.69 a price differential of N156.  The 1-year Non-Deliverable forward contract was down 5% from N394.29 to close at N421.22 a price differential of N26.93.

One month NDF is now N395/$1 suggesting an imminent devaluation in the I&E window which could also impact the current official exchange rate of N360/$1 as well as the BDC rate which was devalued to N370/$1 some weeks back.

A forward market is an OTC market platform that fixes the price of a financial asset for future delivery. Forward markets are used for trading a range of instruments, especially in the foreign exchange market.  Forward currency contracts are used by traders, investors to lock in a currency’s exchange on a date agreed on.  

Non-Deliverable forwards allow hedging of currencies where fiscal regulators ban foreign access to local currency or the parties want to remunerate for risk without the physical exchange of cash. 

READ ALSO: Possible impacts of last week’s CRR debit on banks’ balances by the CBN

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Nigeria’s central bank has been struggling to stabilize Nigeria’s currency exchange rate because of historical low crude prices and the shutdown of economic activities in major cities of Nigeria  

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Plunging crude oil prices has negatively disrupted the economy of Africa’s biggest oil producer, just as the onslaught of Covid-19 closed businesses and disrupted human activities of people to contain. Nigeria’s central bank devalued the naira against the dollar in March but is still under pressure to devalue the naira even further amid a scarcity of U.S dollars and poor export earnings. 

READ MORE: External reserves to fall below $30 billion, more forex restrictions expected

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What this means: This depreciation is a clear indication of the supply gap that currently exists in the foreign exchange market. Demand is high but not enough supply to stabilize the exchange rate. As things stand, the CBN will struggle to support the exchange rate as it did in 2017 when it newly introduced the I&E window. Back then, oil prices picked up and the government also received proceeds from its Eurobond offers.

The CBN’s expensive rate induced monetary policy also helped keep foreign dollars within Nigeria. The situation has changed from then as oil prices remain depressed and the economy is still reeling from the Covid-19 lockdowns.

There is also likely going to be more depreciation of the naira if things remain the same. Sources with connection to the megabanks inform Nairametrics that as things stand, most local businesses that rely on foreign inputs with significant dollar demand will either have to pivot sourcing locally or go bankrupt.

Stanbic 728 x 90

READ MORE: IMF list unpopular policies CBN must reverse

Meanwhile, the naira had hit N460 last week at the black market (its weakest level in three years), as dollar scarcity crippled the market. The naira was selling at N442 to a dollar at the black market today according to the Everdon bureau de change. The black market rateremains 16% lower than the official exchange rate which is pegged at N360.  

Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. Message Olumide on Twitter @tokunboadesina. He is a Member of the Chartered Financial Analyst Society.

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Macro-Economic News

Nigeria’s inflation rate surges to 18.17% in March 2021

Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021.

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Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021. This represents 0.82% points higher than the February figures.

This is according to the Consumer Price Index report, recently released by the National Bureau of Statistics (NBS).

On a month-on-month basis, the Headline index increased by 1.56% in March 2021, this is 0.02% points higher than the rate recorded in February 2021 (1.54 percent).

Food inflation

Food inflation, a closely watched index spiked to 22.95% from 21.79% recorded in the previous month.

  • On a month-on-month basis, the food sub-index increased by 1.9% in March 2021, up by 0.01% points from 1.89% recorded in February 2021.
  • The rise in the food index was caused by increases in prices of Bread and cereals, Potatoes, yam, and other tubers, Meat, Vegetables, Fish, Oils and fats, and fruits.
  • Also, the average annual rate of change of the Food sub-index for the twelve-month period ending March 2021 over the previous twelve-month average was 17.93%, representing 0.68% points from the average annual rate of change recorded in February 2021 (17.25%).

Core inflation

The ”All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce rose to 12.67% in March 2021, up by 0.29% when compared with 12.38% recorded in February 2021.

  • On a month-on-month basis, the core sub-index increased by 1.06% in March 2021. This was down by 0.15% when compared with 1.21% recorded in February 2021.
  • The average 12-month annual rate of change of the index was 10.01% for the twelve-month period ending March 2021; this is 0.76 percent points lower than 10.77% recorded in February 2021.
  • The highest increases were recorded in prices of Passenger transport by air, Medical services,
    Miscellaneous services relating to the dwelling, Passenger transport by road, Hospital services, Passenger transport by road.
  • Others include; Pharmaceutical products, Paramedical services, Vehicle spare parts, Dental services, Motor cars, Maintenance and repair of personal transport equipment, and Hairdressing salons and personal grooming establishment.

Meanwhile, the urban inflation rate rose to 18.76% (year-on-year) in March 2021 from 17.92%
recorded in February 2021, while the rural inflation rate jumped to 17.6% in March 2021 from 16.77% in February 2021.

State inflation rate

  • In March 2021, all items inflation on year on year basis was highest in Kogi (24.51%), Bauchi (22.24%), and Sokoto (20.70%), while Imo (16.08%), Kwara (15.34%), and Cross River (14.45%) recorded the slowest rise in headline Year on Year inflation.
  • In terms of food inflation, on a year on year basis was highest in Kogi (29.71%), Sokoto (27.02%), and Ebonyi (26.59%), while Abuja (20.10%), Kebbi (19.98%), and Bauchi (18.61%) recorded the slowest rise .in year on year inflation.

What this means

  • The galloping nature of Nigeria’s inflation is an indication of the dwindling purchasing power of Nigerians.
  • This implies that Nigerians spent more on purchasing goods and services in the month of March, compared to February.
  • The last time Nigeria recorded an inflation rate higher than 18.17%, was in January 2017 when headline inflation stood at 18.72%.

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Macro-Economic News

Nigerians spent N13.9 trillion on household consumption in Q4 2020, an increase of 16.6%

Household consumption expenditure of Nigerians rose by 16.59% in Q4 2020 to stand at N13.92 trillion.

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Household consumption expenditure of Nigerians rose by 16.59% in Q4 2020 to stand at N13.92 trillion

The final consumption expenditure of households in Nigeria hit N13.92 trillion in the fourth quarter of 2020. This is according to the recently published Nigerian Gross Domestic Product report (Expenditure and Income Approach), by the National Bureau of Statistics (NBS).

According to the report, Nigeria’s household consumption rose by 16.59% in Q4 2020 to stand at N13.92 trillion, compared to N11.94 trillion recorded in the corresponding quarter of 2019. It also represents a 20.76% increase compared to N11.52 trillion recorded in the preceding quarter.

READ: Nigerians earn N16 trillion as salary and wages in 2017 up 11%

Major Highlights

  • Household consumption expenditure in Q3 and Q4 2020 grew by 6.1% and 16.59% year-on-year in real terms.
  • The annual growth rate in real household consumption expenditure stood at 0.81% as against a decline of 1.06% recorded in 2019.
  • Government consumption expenditure recorded growth rates of 99.18% and 12.13% in Q3 and Q4 2020 respectively, while the annual growth rate stood at 61.58% in 2020 compared to 8.78% recorded in 2019.
  • Although Net Exports recorded positive growth rates in the first two quarters of 2020 but turned negative in the third and fourth quarters of 2020. It dipped by 52.39% and 72.61% in Q3 and Q4 2020 respectively.
  • By annual consideration, net export declined by 29.55% in 2020 as against a growth of 7.64% recorded in the previous year.

However, national disposable income grew by 4.44% in the third quarter of 2020 and 3.13% in the fourth quarter of the year, while a 3.34% growth was recorded as the annual growth compared to 0.35% growth recorded in 2019.

Compensation of employees, dipped by 2.32% in Q3 2020, before recording an increase of 6.36% in the fourth quarter of the year. The decline in the third quarter could be largely attributed to the downturn caused by the covid-19 pandemic, forcing many organisations in the country to either downsize their staff strength or embark on a pay cut.

READ: Covid-19: Nigerian record worst consumption expenditure in over 12 quarters

What this means

  • Consumption expenditure is an important factor in determining economic growth for any country. Nigeria recorded its worst quarterly consumption expenditure in the second quarter of 2020.
  • This was due to the effect of the covid-19 pandemic on the Nigerian economy, which eventually led to a second recession in 5 years as Nigeria’s real GDP contracted by 6.1% and 3.62% in Q2 and Q3 2020 respectively.
  • It is, however, important to note that Nigeria recovered from the covid-induced recession in the fourth quarter of the year as the real GDP expanded by 0.11% in Q4 2020.

READ: Nigeria’s GDP contracts by 1.92% in 2020, as economy initiates recovery

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International trade

In the third and fourth quarters of 2020, real exports declined by 42.05% and 57.79%, year on year, resulting in an annual growth rate of -26.96% in 2020. However, on a quarter on quarter basis, real exports remained negative from Q1 2020 to Q4 2020.

Due to declining rates of growth in exports and imports in 2020, the growth in the net balance of trade (or net exports) was negative in Q3 and Q4 2020. On a year-on-year basis, the net trade balance declined by 52.39% in real terms in Q3 and also dipped by 72.61% in Q4.

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READ: CBN blames petroleum import for Nigeria’s $5.2 billion current account deficit

What you should know

  • The Nigerian economy expanded marginally by 0.11% in Q4 2020. It, however, contracted by 1.92% in 2020 to stand at N70.14 trillion in real terms.
  • The final consumption expenditure of households in Nigeria stood at N42.81 trillion in 2020.
  • Individual consumption expenditure for general government stood at N1.68 trillion while collective consumption stood at N4.98 trillion in the same period.

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