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CBN Reports Decline in Money Supply

Donald Tseen:

The Central Bank of Nigeria (CBN) recently  released its monthly economic report for May 2017.

The report shows that broad money supply (M2), fell by 6.0 percent over the level at the  end  of December 2016, reflecting the 7.4 per cent and 6.7 per cent decline in other assets (net) and net foreign assets of the banking system, respectively.

Banks’ deposit rates also generally trended sliding, while lending rates rose in May 2017, according to the report.

With the exception of the seven – day deposit rate, which rose above the levels in April 2017, all other deposit rates of various maturity fell from a range of 8.48 per cent -13.08 percent in the preceding month to 7.53 percent – 11.33 percent in May. The average savings and term deposit rates fell to 4.08 percent and 8.65 percent from 4.24 percent and 9.10 percent, separately, in the preceding month.

For the meantime, the average prime and maximum lending rates rose by 0.14 percentage point and 0.44 percentage point to 17.58 per cent and 30.75 per cent, respectively, at end-May 2017.

Consequently, the spread between the average term deposit and the maximum lending rates widened by 0.89 percentage point to 22.10 percentage points at end of May 2017.

Also, the spread between the average savings deposit and maximum lending rates, widened by 0.16 percentage point to 26.43 percentage points at the end of the review month. (See Graph Figure 2)

This data shows that banks may continue to declare bumper profits despite the tough macro environment due to elevated yields and broken monetary transmission mechanism where deposit rates do not track the monetary policy rate (MPR).

Domestic crude oil production was estimated at 1.63 mbd in May 2017.

Crude oil export was estimated at 1.18 mbd or 36.58 mbd in the review month.

The average spot price of Nigeria’s reference crude oil, the Bonny Light (37° API) fell to $51.20 per barrel in May 2017 from $52.89 per barrel recorded in April 2017, representing a decline of 3.20 per cent.

This should put some pressure on government revenues.

Foreign exchange inflow and outflow through the CBN in May 2017 were $2.26 billion and $3.02 billion, respectively, and resulted in a net out flow of $0.76 billion. (See Graph Figure 3)

Aggregate foreign exchange flow through the economy, however, resulted in net inflow of $2.60 billion in the review month.

Foreign exchange sales by the CBN to the approved dealers amounted to $2.64 billion and represented a 70.8 percent increase above the level in April 2017.

The average exchange rate of the naira at the inter – bank segment, at N305.54 per US dollar, appreciated by 0.2 per cent, compared with the level in the preceding month, but depreciated by 35.5 per cent, relative to the level in the corresponding period of 2016.

Jump in CBN sales to official dealers indicate a more confident apex bank in its firepower.

The net positive dollar flows through the economy is also a signal that the new Investor and Exporters (I & E) window is bringing back confidence and some offshore flows.

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