Consumers positive on Naira appreciation, higher inflation, interest rates in 2019

In spite of the increasing risk to the naira exchange rate from declining crude oil prices, which dropped below $50 per barrel last week, consumers across the country expect the naira to appreciate in 2019.

They, however, expect the inflation rate, interest rate and unemployment rate to rise in the New Year. Meanwhile, the Manufacturing and Non Manufacturing Purchasing Managers Indexes of the Central Bank of Nigeria, CBN, hit an all time high of 61.7 percent in December, indicating economic expansion occurred at a faster pace during the month. On the other hand the CBN last week intensified its liquidity mop activities, as it mopped up ₦1.07 trillion from the interbank money market.

Prompted by expected increase in net household income, improvement in Nigeria’s economic conditions, the consumers’ overall confidence outlook rose to 28.4 percent for the next 12 months, from 9.7 percent recorded for fourth quarter of 2018 (Q4’18), with consumers across the country expecting the naira to appreciate in 2019. Consumers, however, expect inflation rate, interest rate and unemployment to rise in the New Year.

These were highlights of the Consumer Expectation Survey, CES, report for the fourth quarter of 2018 released by the CBN at the weekend. The report stated: “The consumers’ overall confidence outlook improved in Q4 2018, as more consumers were optimistic in their outlook. The index at 9.7 points was 8.7 points higher than the index in the corresponding period of 2017.

“Respondents attributed this favourable outlook to improved family income, family financial situation and economic condition. The consumer outlooks for the next quarter and next 12 months were positive at 33.2 and 28.4 points, respectively. This outlook could be attributed to the expected increase in net household income, the anticipated improvement in Nigeria’s economic conditions and expectations to save a bit and/or have plenty over savings in the next 12 months.

“Most respondents expect prices of goods and services to rise in the next 12 months, with an index of 13.3 points. The major drivers are rent, food and other household needs, telecommunication, electricity, debt payment and purchase of house. With indices of 5.0 and 6.6 points, consumers expect borrowing rate to rise while the naira is expected to appreciate in the next 12 months.

“The unemployment index for the next 12 months remained positive at 29.3 points in Q4 2018, indicating that majority of the consumers expect the unemployment rate to rise in the next one year.”

Purchasing Managers Index hit 61.7%

In apparent indication of sustained expansion of economic activities, the Manufacturing and Non Manufacturing Purchasing Managers Indexes of the Central Bank of Nigeria, CBN, rose to an all time high of 61.7 percent in December.

According to the CBN’s Purchasing Managers Index report for December, the Manufacturing Purchasing Managers Index rose to 61.1 percent in December from 57.9 percent in November. Similarly the Non Manufacturing Purchasing Managers Index rose to 62.3 percent in December from 58.4 percent in November.

The report showed that 30 of the 31 subsectors surveyed recorded growth while the remaining one contracted during the month.

The report stated: “The Manufacturing PMI in the month of December stood at 61.1 index points, indicating expansion in the manufacturing sector for the twenty-first consecutive months. The index grew at a faster rate when compared to the index in the previous month. Thirteen of the 14 subsectors surveyed reported growth in the review month in the following order: transportation equipment; furniture and related products; printing and related support activities; textile, apparel, leather and footwear; plastics and rubber products; chemical and pharmaceutical products; food, beverage and tobacco products; non-metallic mineral products; paper products; fabricated metal products; cement; electrical equipment; and petroleum and coal products.

“The primary metal subsector recorded decline in the review period. The composite PMI for the non-manufacturing sector stood at 62.3 points in December 2018, indicating expansion in the Non-manufacturing PMI for the twentieth consecutive months. The index grew at a faster rate when compared to that in November 2018.

“All the 17 surveyed subsectors recorded growth in the following order: repair, maintenance/washing of motor vehicles; information and communication; water supply, sewage and waste management; wholesale/retail trade; professional, scientific, and technical services; accommodation and food services; arts, entertainment and recreation; electricity, gas, steam and air conditioning supply; utilities; finance and insurance; agriculture; transportation and warehousing; educational services; construction; real estate rental and leasing; management of companies; health care and social assistance.”

CBN rattles interbank with ₦1 trillion liquidity mop up

The interbank money market came under intense liquidity pressure for most of last week, as the CBN conducted regular and special open market operation (OMO) treasury bill (TB) auctions to mop up ₦1.07 trillion.

Financial Vanguard investigations showed that the apex bank mopped up ₦420 billion through regular OMO auctions from Monday to Wednesday, which was followed up with mop up of ₦646 billion through a special auction on Thursday.

Respite however came to the market through matured TBs worth ₦551 billion which prompted cost of funds to closer lower for the week.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) fell by 450 basis points (bpts) to close at 17.17 percent from 21.67 percent the previous week. Similarly, interest rate on Overnight lending dropped by 666 bpts to close at 18.42 percent from 25.08 percent the previous week.

Analysts expect this trend to continue this week due to inflow of ₦584 billion inflow from maturing TBs, while the CBN is expected continue its aggressive liquidity mop up in addition to sale of primary market TBs worth ₦74.84 billion.

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