As Nigeria’s Central Bank ‘steals’ the spotlight in January

Investor sentiment towards the Nigerian economy was dealt a slight blow, after the MPC cancelled the January meeting due to their "inability to form a quorum". Although the missed central bank meeting is likely to have little impact on the economy, it has the potential to reinforce market concerns over the nation's poor policy management.

An unwelcome return of political risk and uncertainty amid the current developments, could create significant headwinds for the nation as it continues to consolidate the growth that began last year. While some fears over the drama were quelled by positive comments from CBN Godwin Emefiele, this rocky start to 2018 has certainly placed the Nigerian economy in the spotlight.

Looking beyond the missed MPC meeting, which most likely would have maintained the status quo on monetary policy, the overall economic outlook for Nigeria remains encouraging. The aggressive recovery in oil prices, exchange rate stability and a boost in domestic production, are all positive indicators of the nation's health.

The Inflation rate has declined steadily to 15.37% while the foreign exchange reserves have jumped to a near five-year high -above $40 billion. With foreign investor confidence over the nation attracting a mammoth $13 billion of inflows via the I&E window, it is not difficult to understand why the outlook for Nigeria is becoming increasingly positive.

Focusing on foreign exchange, the Naira displayed a degree of stability after the implementation of the Importers and Exporters window. The window not only attracted billions of Dollars’ worth of inflows to Nigeria, but also boosted liquidity to the FX markets – mitigating speculative demand for the Dollar.

The amalgamation of Foreign exchange stability, easing inflationary pressures and signs of economic growth, are likely to stimulate expectations of the CBN cutting interest rates in an effort to support growth. While it may be too early to reach any conclusions over the CBN cutting rates in Q1, a move could be on the cards in Q2 if inflation continues to ease.

With the outlook for Oil becoming increasingly bullish amid ongoing optimism over OPEC’s supply cuts re-balancing the markets, this is good news for Nigeria’s economy. WTI Crude Oil is trading around multi-year highs above $65, while domestic oil production in the nation has hit 2.2 million barrels a day.

While the combination of rising domestic production and recovering oil prices should result in higher government revenues short term, this is not a long-term solution. With U.S. Shale still a threat to higher oil prices, Nigeria should not relegate its quest to diversify into other sustainable sources of growth, to limit external risks.