Pre-MPC Analysis: Options before the MPC



Sell-Off Sentiment on Global Shares despite Dovish Stance by the Fed Reserve on its Monetary Policy

This week, sell-off interest dominated in ten (10) of the fourteen (14) stock markets under our coverage, as U.S Treasury yield continues to rise.

Consequently, all of the three broadest market indices in U.S the DJIA, S&P 500 and Nasdaq Composite Index all lost by 0.46% w/w, 0.77% w/w and 0.79% w/w respectively, despite the Federal Reserve Chairman Jerome Powell maintaining a dovish stance in its monetary policy and a projected rapid jump in the economic growth.

report 1Similarly, two of the major market around Europe France CAC 40 and FTSE 100 dipped by 0.80% w/w and 0.78% w/w respectively, while the German DAX  gained 0.82% w/w as the European Central Bank (ECB) maintained its Monetary Policy Rate.

Mixed sentiment however prevailed in the Asian market as the Japan Nikkei 225 and Honk-Kong HANG SENG gained 0.25% w/w and 0.87 % w/w, while China Shanghai Composite Index and India S&P BSE shed 1.40% w/w and 1.84% w/w respectively.

Across other Emerging markets under our coverage, Brazil’s EGX 30, South Africa’s JSE and Argentina’s MERVAL Index also shed 3.05%w/w, 3.37%w/w and 0.19%w/w respectively; save for Brazil’s BOVESPA  that gained 1.81%w/w.

We expect to see some modest recovery in the next trading week in reaction to U.S stimulus relief package and Fed Reserve forecasted higher economic growth.



Pre-MPC Analysis: Options before the MPC

The next MPC meeting will be held on March 25th and 26th at the CBN headquarter. Here all the eleven members of the CBN Monetary Policy Committee are expected to review and make critical decisions on the monetary policies indicators to steer the economic direction for the next two months.

At the last meeting on January 25th and 26th, the committee members unanimously voted to retain all the monetary policy parameters: MPR at 11.5%, Asymmetric corridor at+100/-700 basis points around the MPR, CRR at 27.5%, and liquidity ratio at 30%.

On this note, we take a look at the recent developments in the economy since the last MPC meeting, to predict what the decisions at the next MPC meeting will be, as the economy continues to recover, after the exit from the economic lockdown and coronavirus- induced recession.

Development in the economy since the last meetings

Nigeria exit recession:

Nigeria’s Gross Domestic Product (GDP) in Q4 grew by 0.11%q/q and -1.92% y/y in real terms according to the official data released by the National Bureau of Statistics (NBS) in February 2021 to beat the IMF and World Bank projection of -3.2%  and -4.1% for the year 2020 respectively.

new report 1source: CBN, NBS, GTI Research

Although the oil component contribution declined by 19.76%y/y in real terms to 13.89%, there was significant growth in the contribution of the non-oil components to the GDP by 1.69%y/y in real terms to 91.84% to lift Nigeria out of economic recession. The sectors that showed growth were telecommunication & broadcasting, agriculture (crop production), real estate, manufacturing, mining and quarrying, and construction.


Inflation and unemployment rate hit a new level:

The inflation and unemployment rates are major indicators for measuring price stability and economic production and growths. As stated above, in the latest data released by the NBS in March 2021, the Unemployment rate increased to 33.3% in Q4 2020 from 27.1% in Q2 2020, the second-highest in the world.


Also, Nigeria’s headline inflation spiked from 16.47% in January to a record high of 17.33% in February 2020 to further worsen the inflation–to-MPR spread, a major concern for the members of the MPC to worry about, considering the continuous rise in food prices.

Declining foreign reserve in spite of the increase in oil price:

Despite, the increase of oil price above $65 per barrel, the foreign reserve has declined from 36.40 billion dollars in between the period of the last MPC meeting to 34.95 billion dollars (as of 15th March 2021). The high demand for the dollar continues to put pressure on naira at the I & E window and parallel markets, but it remained stable at the official

new report 2source:DMO,,GTI Research

National Public Debt increased Amid Dwindling revenue:

According to the latest data released by The Debt Management Office (DMO) on March 15 2021, the national debt increased by $1.82 billion to 86.39 billion dollars from $84.57 billion, indicating an increase in borrowings in the face of declining national revenue.

Our Position:

From the above analysis, the members of the MPC have more negative factors to worry about. However, given the options available to the CBN, we are of the view that the MPC may likely vote in favour of an increase in the MPR during next week’s meeting, our position is informed by the crushing rise in inflation and the decline in the foreign reserve.

A reduction in the MPR will lead to a decrease in the cost of borrowing by lenders, positively drive expansion programmes, create new employments in the real sector, and also increase liquidity in the economy which will consequently further worsen the rate of inflation, put more pressure on foreign exchange and loss in investors’ confidence.

An increase in MPR will help shrink the increasing rate of inflation, increase foreign investors’ confidence in the economy. Hence, attract more foreign investment inflows considering the declining foreign reserve. However, this will lead to an increase in the cost of borrowing, thereby reducing the expansion drive in the real sector and the ability to create new jobs in the economy.

Inflation and Unemployment Report: Is Nigeria setting a new landmark on a high misery index?

The Nigerian National Bureau of Statistics (NBS) during the just concluded week published two important national data – the February 2020 Consumer Price Index (CPI) report and Q4’2020 Labour Force Survey Report, with both caught our attention.

This became important to establish the country’s Misery Index (a measure of an economy’s health based on the sum of its Inflation and Unemployment rates at a point in time) and weigh the impact of the 2020 headwinds on the health of Nigeria economy and the standard of living of an average citizen.

Inference from the February 2021 CPI Report:

In line with our projection in our weekly note of last week, the Nigeria Headline Inflation rate printed at 17.33%y/y and 1.54%m/m in February 2021. This represents an eighteenth consecutive increase in the Headline inflation rate and the highest in 4-years. The increase was jointly driven by the increase in the Food Inflation (sub-component of the Headline Inflation) to 21.79%y/y – the highest in 16 years; and in the Core Inflation to 12.38%y/y.

The spike in both the Food and Core inflation (we believe) was impacted by the rising rate of insecurities in the country (which has stopped many farmers from accessing their farmland and discourage investors from investing in agriculture, despite various intervention from the government) coupled with the dry season effect on plants, depreciation in the Naira against the dollar, high transport fare and high cost of electricity.

Inference from Q4’2020 Labour Force Report:

As expected, Nigeria’s Unemployment rate rose to a record of 33.30% in Q4’2020, which is 6.2% (620bps) higher than the 27.1% previously reported in Q2’2020 and put Nigeria at the third position after Bosnia and Herzegovina (33.69%) and Namibia (33.4%) in the global unemployment rate ranking. Aside from the reported increases in the Unemployment rate between the Q4’2020 and Q2’2020, there are several dynamics in the newly released data that cause concern.

Firstly, the number of persons in the economically active population age bracket (15-64 years) rose by 4.3% to 122.05 million in Q4’2020, from 116.87 million in Q2’2020, the number of persons in the labour force who are active and willing to work declined by 13.22% (or 10.61 million) to 69.68 million as against 80.29 million in Q2’2020. The reduction in actual Labour Force Population (which ought to have increased, other things being equal) was mainly attributed to the culture of “Full housewives” in some states and the negative attitude towards work by some in this segment of the population.

Secondly, we noticed a deviating movement in Full employment and Underemployment rates between Q2’2020 and Q4’2020. According to the NBS, Full employment defines a situation in which a person works on a sustainable basis for a minimum of 40 hours a week, while Underemployment defines a weekly working duration of between 20 and 39 hours on a sustainable basis.

new report 3source:NBS,GTI Research

Following the data release, the number of persons in Full employment declined by 14.09% (or 5.01 million) and between Q2’2020 and Q4’2020 to 30.57 million, while the number of Underemployed persons also declined by 30.63% (7.03 million) to 15.92 million over the same period.

We suspect that the decline in both the Full employed and Underemployed could be due to the downsizing of employees (most of whom could be full-time staff) by some businesses/companies badly affected by the pandemic. Also, the effect of the rising rate of insecurities in the country, which has restricted many seasonal farmers away from their farmland.

Thirdly, the total number of Unemployed persons (defined as working between 0 and 19 hours weekly) rose by 6.54% to 23.19 million from 21.76 million in Q2’2020. When disaggregated based on educational qualifications, holders of First degree/HND accounted for 32.0% of the Unemployed population, while the Senior Secondary School Certificate holders accounted for the highest portion of 35.27%. This further highlights the need for the government to implement policies that will support SMEs, as the sector has strong potential to absorb the large and unskilled unemployed population.

Lastly, in terms of Age-group, the age range of 15-24 years accounted for the highest proportion of the Unemployment rate – 53.4%, while the age range of 45-54 years accounted for the least – 25.4%. This underscores the high rate of youth unemployment in the country; the bane for the rise in social vices.

Misery Index review:

Drawing from the most recent statistics from Nigeria and five other top economies in Africa –South Africa, Ghana, Algeria, Egypt, and Kenya, Nigeria’s Misery Index stood at 39.92% (based on the orthodox Author Okun’s Misery Index composition – Inflation plus Unemployment rate), high above the five other African peers. This implies that the Nigeran economy is less healthy compared to selected African peers, and an average Nigerian citizen has a relatively low living standard.

report 8Source:CBN,NBS,Tradingeconomics,GTI Research

Going the John Hopkins modified Misery Index model which is obtained from the difference between the sum of unemployment, inflation, and lending rate and the real GDP growth rate (i.e., Un+In+Lr-GDP), Nigeria’s Misery Index still settled high above other peers, printing at 78.82% compared to the closest peer, South Africa with 41.20%.


MTNN, Buacement sustains equity market w/w negative run

Trading activities on the Nigerian Custom street sustained the week-on-week negative run to seven consecutive weeks to shed 0.69%w/w. The week negative sentiment was buoyed by price depreciation in some bellwether stocks, such as MTNN, Buacement, Dangsugar, among others.

Consequently, the NSE-ASI and NSE Market Capitalisation dipped by 0.69% w/w to close for this week at 38,382.39 absolute points and N20.08 trillion compared to 38,648.48 absolute points and N20.22 trillion last Friday. This nominally translates to a week-on-week loss of N139.22 billion in Market Capitalisation value.

Two of the five major stocks closed positively led by the Banking sector (+2.09%w/w) and  Oil & Gas sector (+1.59%w/w), while the Industrial sector, Consumer sector and Insurance sector closed negatively with  (-2.62%w/w), (-1.46%w/w) and (-0.01%w/w) w/w respectively.

ETERNA emerged best performing stock this week with w/w gain of  +20.78%, while NEIMETH shed -14.83% to emerge as the top loser.


A total turnover of 2.34 billion shares worth N19.27 billion in 20,173 deals was traded this week by investors on the floor of the Nigerian Stock Exchange as against a total of 1.68 billion shares worth N23.54 billion in 21,732 deals.

Thirty-three (33) equities appreciated in price during the week, lower than thirty-five (35) equities in the previous week. Twenty-five (25) equities depreciated in price, lower than thirty-eight (38) in the previous week, while one hundred and four (104) remained unchanged, higher than eighty-nine (89) equities recorded in the previous week.

Market Outlook: Week ending March 26, 2021

We expect to see more of a mixed reaction from investors in the equity market amidst the outcome of the coming MPC meeting and the low prices of some fundamentally viable stocks


The Naira this week remain unchanged against the USD at  both the official and I&E window to close the week at ₦379/USD  and ₦410.00/USD respectively, as against the previous week,

In the meantime, the foreign reserves this week fell by $110million from the level of $34.59 billion (12/03/2021) to $34.48 billion (16/03/2021). Crude oil price also lost $4.69pbl w/w from $669.22pbl last Friday to $64.53pbl.


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